The past few months in particular, have been perhaps the worst ever for KPMG, Deloitte, PwC and EY; these giant multinational audit/accounting firms, popularly known as the BIG FOUR. These very giant firms, which have had an iron grip and a virtual monopoly on the Indian audit/accounting profession, and have carefully crafted an image of being the gold standard of excellence in this noble profession, have been thoroughly exposed and disgraced for their shameful and unscrupulous misdeeds and negligence.
If on one hand Udayan Sen, the former CEO of Deloitte and his other partner mates are accused of active collusion in the giant ILFS fraud, and are being questioned by various agencies like the SFIO, ED, MCA etc., then on the other, an embattled PwC, which has already been banned by SEBI last year, for a period of two years, from undertaking any listed company audits, for its dubious role in the Satyam scam, is now in a panic mode and has suddenly resigned as the auditor of Reliance Group companies like Reliance Cap, Reliance Housing Finance and Reliance Infra, alleging serious issues like fraud and failure of the companies to explain these charges, due to which it is now unable to complete these audits. PwC is being rightly questioned as to why is it refusing to sign now what it had signed earlier and what has changed so drastically that while it did sign the accounts for the third quarter, but refuses to do so now for the fourth quarter. While PwC has been banned by SEBI and faces uncomfortable questions for its sudden resignations, it also faces the threat of legal action by the Reliance Group.
In the case of EY S R Batliboi & Co., a flagship EY firm, has been banned by the Reserve Bank for a year, from undertaking any bank audits, for its questionable conduct in certifying the financial statements of Yes Bank and Axis Bank, which did not disclose their bad loans and losses to the tune of Rs. 13500 crores. With all these multinational audit firms exposed for their negligence and misconduct, they now face investigation and punishment, which include the MCA’s proposal to ban Deloitte and KPMG from undertaking any audit of any listed Indian company for a period of five years, for their dubious and deliberate role in the giant ILFS scam. The charges against them are the most serious and include falsifying the financial statements, violating mandatory audit and accounting standards, knowingly signing false statements and not reporting fraudulent loans, apart from conniving with the management to conceal information. With such serious charges against them, the Big Four are said to have hired top notch lawyers to protect them and the global CEO of Deloitte is said to have met the top officials of the Ministry of Corporate Affairs, not to have a cup of tea, but certainly to plead its case. To us, it was not a courtesy call by the Deloitte CEO, but a crisis call pleading for mercy and leniency.
This downfall and expose of the Big Four is not surprising. These giants have very craftily perpetrated their hegemony on the Indian audit/accounting profession for decades. They have had an iron grip on the profession, such that almost 70% of listed Indian companies by market cap are audited by them. They have used their near monopoly to ruthlessly put down any homegrown Indian competition and as we now see in the case of Deloitte/KPMG and ILFS, they have indulged in the most unscrupulous deeds, only for making money. They are the watchdogs who willingly compromised their independence and integrity and gave a clean chit to the fraudulent companies that they audited. Their sins are the most serious that an auditor can commit viz. willingly certifying bogus/false financial statements and they deserve no mercy. It is time to clean the dirt that has got accumulated in the Indian audit profession, and if found guilty, these errant auditors must not be spared, merely because they are big, powerful and resourceful. They have been the unchallenged leaders of the audit profession and it is they who have indulged in malpractices, which has put the entire profession under a cloud. A system clean up is needed and that must start from the top firms, which includes punishing their delinquent partners if found guilty. And there will be no crisis in the profession, if they are punished, but there will certainly be one, if they are not.