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The Big Four Deserve Big Punishment

In a huge setback to Deloitte and BSR, the KPMG Indian firm, the National Company Law Tribunal (NCLT), dismissed their petition, challenging the very authority of the NCLT, to ban these firms from undertaking any audit business for a period of five years, as has been proposed by the MCA. These firms, brushing aside the shocking incriminating facts and findings, revealed by the ongoing ILFS investigation into the scammy affairs of ILFS, laughingly pled that since they are no longer the auditors to ILFS group entities, the NCLT has no power to ban them, as proposed by the MCA. That almost means that if you quit as an auditor even after committing professional misconduct, you cannot be punished. It is worth noting that both these giant firms have been found guilty of certifying bogus financial statements of ILFS entities as being true and fair, knowing very well that they were bogus and while KPMG resigned as auditors only in June this year, Deloitte gave up its audit as late as end 2018, and they yet plead that they are outside NCLT’s punishing domain.

The serious allegations against these global multinational audit firms, are based on the investigation findings of the SFIO and they include deliberately not reporting the true state of affairs of ILFS, and painting a rosy picture, despite being aware that its networth was negative, there was rampant misuse of funds, accounting standards had been violated by ILFS and that its management had concealed its NPAs and losses, which these auditors were fully aware of. It was this collusion of the auditors for which Deloitte was paid a huge sum of about Rs.20 crores per year, that was instrumental in perpetuating the giant ILFS fraud of over Rs.1 lakh crores.

The misdeeds of these powerful multinational accounting firms, consisting of Deloitte, EY, KPMG and PWC committed over many years have caught on with them and they are at the receiving end of the law now, on various fronts. While SEBI banned PWC from undertaking any audit of a listed entity for a period of two years, for its dubious role in the Satyam fraud, the RBI has banned EY from undertaking any bank audit for one year, for its questionable role in bank audits and hiding their NPAs, and it is Deloitte and KPMG which are at the receiving end of investigation agencies and authorities for having deliberately colluded in the ILFS fraud. The MCA has already commenced prosecution proceedings against their partners who approved the fraudulent financial statements and is also freezing their bank accounts and assets, like they have done in the case of the former top executives of the ILFS group such as those of Ravi Parthasarthy, Hari Sankaran, Ramesh Bawa etc.

The law of the land is finally catching up with these powerful audit/accounting firms, whose their power is evident from their worldwide presence and their income which runs into tens of billions of dollars. In 2018, the worldwide revenue of Deloitte was a humongous $43.2 bn, of PWC it was $41.3 bn, of EY it was $34.8 bn and of KPMG it was about $30 bn. And these huge revenues are not just out of providing audit services to clients, but more so due to tax consulting, management consulting, fees for mergers and acquisitions, legal and financial services etc. These are giant firms, who have compromised their independence and integrity in the pursuit of profits and have clearly indulged in the most unethical practices, not just in India, but in their practices worldwide. They are the watchdogs who did not bark and that helped corporates to perpetrate huge frauds, as we see in India.

 

The reasons that these Big Four audit firms deserve the most stringent punishment are as under:-

 

  1. They have knowingly signed false financial statements, and have misled the public and authorities, with the truth hidden in ambiguous fine print, aware that what they were certifying as true and fair was indeed not so.
  2. By indulging in such unethical practices, they have resorted to profiteering and pursuit of illegal gains.
  3. They have created a monopoly in the accounting/audit profession, to perpetuate their domination over the profession for illegal gains.
  4. They have misused their leadership position in the profession.
  5. They knowingly violated the law by signing bogus audit reports.
  6. They must be punished, however powerful and influential they be, since no one is above the law of the land and the guilty must be punished.
  7. By banning them from practice, the homegrown audit firms that they stifled and whose growth they suffocated, will be nurtured and that will do good to the Indian corporate world.
  8. They were the watchdogs, due to whose negligence, incompetence and collusion, giant corporate frauds were committed and lakhs of crores of rupees of public money have b

 

While the NCLT and the MCA are proceeding in the right direction, these powerful firms will not be punished so quickly. It took a decade before SEBI banned PWC for its dubious role in the Saytam fraud. These firms have unlimited resources, which give them access to the most influential lawyers, who will ensure that justice will only be delayed in Indian courts and it will be years before they are actually punished.

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