The US Securities and Exchange Commission (SEC) on Tuesday sanctioned five India-based affiliates of PricewaterhouseCoopers (PwC) that formerly served as independent auditors of Satyam Computer Services Limited.
These Indian PwC affiliates have been accused of repeatedly conducting deficient audits of Satyam's financial statements and enabling a massive accounting fraud to go undetected for several years.
As a result, PwC has agreed to pay a USD 6 million penalty, the largest ever by a foreign-based accounting firm in an SEC enforcement action.
In a statement, SEC said investigations revealed that the audit failures by the PW India affiliates - Lovelock & Lewes, Price Waterhouse Bangalore, Price Waterhouse & Co. Bangalore, Price Waterhouse Calcutta and Price Waterhouse & Co. Calcutta - were not limited to Satyam, but rather indicative of a much larger quality control failure throughout PW India.
In addition, the PW India affiliates agreed to refrain from accepting any new US-based clients for a period of six months, establish training programmes for their officers and employees on securities laws and accounting principles; institute new pre-opinion review controls; revise audit policies and procedures; and appoint an independent monitor to ensure these measures are implemented.
In a related settlement today, Satyam agreed to settle fraud charges, pay a USD 10 million penalty and undertake a series of internal reforms.
Since the fraud came to light, the India government seized control of the company by dissolving its board of directors and appointing new government-nominated directors, among other things.
Additionally, India authorities filed criminal charges against several former officials as well as two lead engagement partners from PW India.
"PW India violated its most fundamental duty as a public watchdog by failing to comply with some of the most elementary auditing standards and procedures in conducting the Satyam audits.
The result of this failure was very harmful to Satyam shareholders, employees and vendors," said Robert Khuzami, the Director of the SEC's Division of Enforcement.
"PW India failed to conduct even the most fundamental audit procedures," said Cheryl Scarboro, the Chief of the SEC's Foreign Corrupt Practices Act Unit.
"Audit firms worldwide must take seriously their critical gate-keeping duties whenever they perform audit engagements for SEC-registered issuers and their affiliates and conduct proper audits that exercise professional skepticism and care," he said in a statement.