10 ways the Price Waterhouse fallout changed auditing in India

Price Waterhouse, one of the big four audit firms, has expressed disappointment at the conviction of two former partners in the Satyam scam. Price Waterhouse (PW) was Satyam's auditor when the corporate fraud came to light. Obliquely defending the role of its former partners, it said in a statement: "There has never been any evidence presented that either of our former partners, S Gopalakrishnan or Srinivas Talluri, were involved in, or were aware of the management-led fraud at Satyam." Both the ex-partners would appeal against the verdict, PW said.

The Satyam incident, which dented the image of Indian audit community, had raised questions on the level of corporate governance practices in boardrooms, and on auditor-management relationship. PW had to face collateral damage following the incident with a churn in top management, and the parent company reviewing its India practice. In wake of the scam, the disciplinary committee of the Institute of Chartered Accountants of India, the regulatory body governing auditors and accountants, found the two former Price Waterhouse partners, the audit incharges of firm, the former CFO of Satyam, and the head of internal audit department of Satyam, guilty of professional misconduct. It permanently removed the names of these professionals from the institute's membership list and also imposed a fine of Rs 5 lakh each on them.

The shadow of scandal was writ large on various provisions of the Companies Act, 2013, creating checks and balances in the role of auditors. Here are 10 changes in the audit profession:

1. An auditor is not permitted to have any 'business relationship' with the company, or its subsidiary, associate or a holding company
2. Auditor rotation is mandatory, with retrospective effect, after two terms of five years each
3. No auditor can audit more than 20 companies
4. Restrictions on offering non-audit services to an audit client
5. Minority shareholders can initiate class action suits against the company, its management and auditors
6. Auditors have to certify the adequacy of internal financial control systems and operational efficiency of such controls
7. The new company law mandates preparation of consolidated financial statements for all companies with one or more subsidiaries, associates and joint ventures. This enhances the influence of auditors across group companies
8. Auditors have to certify the presence of a whistle-blower policy in the company. All auditors, including secretarial and cost auditors, are responsible for reporting to Centre within a prescribed time frame any incidence of fraud committed against the company
9. The National Financial Reporting Authority will monitor and enforce compliance with auditing and accounting standards, oversee the quality of service of the profession, investigate matters of professional misconduct by chartered accountants or firms
10. An auditor is liable to be penalised and punished, refund remuneration and pay damages, for contravention of duties. The fine for fraud can range between Rs 25,000 and Rs 25 lakh, with imprisonment up to 10 years