Trust them for Audit and Investigation :)

The International Consortium of Investigative Journalists (ICIJ) on Thursday came out with an exposé on how the world’s biggest four consulting firms help the corporates siphon money to tax havens to evade taxes. The ICIJ, which accessed email conversations and sensitive Government records of tax havens, exposed how PwC, KPMG, Ernst & Young and Deloitte helped their various clients in moving out the money to several tax havens.
In the expose, ICIJ said, “For more than a decade, tax gurus at PricewaterhouseCoopers (PwC) helped Caterpillar Inc., the US heavy equipment maker, move profits produced by its lucrative spare-parts business from the US to a tiny subsidiary in Switzerland.” The investigative journalists’ organisation had accessed emails between Thomas F. Quinn, partner of PwC and Caterpillar’s top executives and found out shuffling of eight billion dollars’ transfer from US to Swiss.
“Thomas F. Quinn, a PricewaterhouseCoopers partner who helped design the tax-savings plan, wrote a PwC colleague that if they wanted to keep the strategy alive, they needed to “create a story” that “put some distance” between the managers and the spare-parts business. “Get ready to do some dancing,” Quinn said. The colleague, managing director Steven Williams, replied: “What the heck. We’ll all be retired when this … comes up on audit. … Baby boomers have their fun, and leave it to the kids to pay for it,” - said the ICIJ report exposing PwC.
ICIJ said in Luxembourg (a tax haven), internal company documents reviewed by them show, “PwC helped Pepsi, IKEA and other corporate giants from around the world embrace inventive profit-shifting strategies that allowed them to collectively slash their tax bills by billions of dollars.”
“In the US, authorities charged, KPMG peddled offshore tax shelters that created billions of dollars in fake losses for rich clients, then misled the Internal Revenue Service about how the shelters worked. In Dubai, anti-corruption advocates claim, Ernst & Young helped the Middle East’s largest gold refiner obscure practices that may violate international standards aimed at combatting trafficking in “conflict gold,” which comes from regions where competition for the mineral breeds bloodshed.
“In New York, authorities charged, Deloitte helped a British bank violate sanctions against Iran, submitting a “watered-down” report to regulators that omitted information about how the bank might be evading money-laundering controls,” said the ICIJ’s expose on the Big 4 consulting firms in the World.
Terming these Big 4 consulting and accounting firms as “architects of offshore money maze”, ICIJ said in its detailed report that these companies operate 81 offices in tax havens across the world. Deloitte employs around 150 people alone in the tiny English Channel islands of Jersey and Guernsey.
Confidential documents obtained by the ICIJ exposed that the Big 4 firms had a close relationship with Portcullis TrustNet, a Singapore-based offshore services firm that sets up hard-to-trace offshore companies for clients around the world. “PwC, for example, helped incorporate more than 400 offshore entities through TrustNet for clients from mainland China, Hong Kong and Taiwan, the records show.,” said ICIJ.
In June 2013, ICIJ had exposed 10,000 illicit bank account holders in British Virgin Islands and Singapore. The names of as many as 500 Indians figured in it. However, Indian agencies have not yet acted on this expose, though the list clearly mentioned names with addresses in India and accounts in foreign banks.
The Special Investigation Team (SIT) on black money trail is still seized with data provided by German and France authorities in 2011. In the 2G scam investigations, the Enforcement Directorate has sent LoRs to several tax havens including Singapore, Switzerland, Mauritius, Cayman Islands and Malaysia in search of money trails.

http://www.dailypioneer.com/nation/accounting-fraud-opens-can-of-worms.html

Deloitte withdraw its report

When did Deloitte submit its audit report?

On May 30, nearly two months before the NSEL crisis broke out.

What are the key statements made by Deloitte?

The Big 4 firm has issued a certificate of compliance of conditions of corporate governance, and independent auditor’s reports accompanied by an annexure on standalone and consolidated financial statements. It certified these statements presented “ a true and fair view” of the company’s affairs ( balance sheet), profit ( profit and loss account) and cash flow ( cash flow statement). 

Did Deloitte make any qualifications in its report?

No, there were no qualifications in the report on both stand- alone and consolidated statements. There were a couple of matters that were “emphasised”.

Who signed these reports?

Deloitte’s partner Rajesh K Hiranandani. A senior chartered accountant, Hiranandani has in the past audited several large companies such as M& M, Sun Pharma and India Infoline.

How much did Deloitte charge?

It charged ₹ 28 lakh for the statutory audit. However, it earned ₹ 23.9 lakh more from FTIL. It earned ₹ 8 lakh on taxation matters and ₹ 15.25 lakh “for other services”.

What did Deloitte do this week?

On September 23, Deloitte informed FTIL the audit report dated May 30 could not be relied on. The company in turn told exchanges it was deferring three key resolutions slotted for the annual general meeting on September 25.

Why did Deloitte make this statement?

Two events preceded the move. One is described in FTIL’s statement to exchanges as “ communication of management of NSEL and statutory auditors of NSEL on the financial statements of NSEL”. Some reports have interpreted this as withdrawal of the audit report by the NSEL auditor as well. Secondly, the move came a day after the Mayaram panel submitted its report. Something adverse in this report could also have triggered the Deloitte move.

Did Deloitte withdraw its audit report?

No. Under the guidance note published by the ICAI, an auditor cannot withdraw a report once published. However, he can revise it. 

What is the procedure for preventing reliance on the audit report already issued?

The auditor can take steps to prevent reliance when the management neither agrees to a revision of financial statements nor extends cooperation.

The auditor would notify those persons ultimately responsible for the overall direction of the entity that action will be taken to prevent future reliance on the report. The steps that can appropriately be taken will depend upon the degree of certainty of the auditors knowledge. 

What steps should the auditor take according to the ICAI?

a) Notify the client that the audit report must no longer be associated with the financial statements; ( b) Notify regulatory agencies having jurisdiction over the client that the audit report should not longer be relied on; ( c) Making an appropriate statement at the annual general meeting, if requested by the chairman.

Deloitte complied with clause ( a). It did not do so for (c).

Did it notified regulatory agencies as given in clause ( b), it does not wish to say.

Source: FTIL annual report, www. icai. org, exchange statements

On September 24, a day before its annual general meeting, Financial Technologies ( FTIL) told exchanges that key resolutions were deferred. One reason given was that Deloitte Haskins & Sells had some reservations about its audit following the crisis at NSEL, an FTIL subsidiary. Business Standard answers some key questions.

Deloitte withdraws its audit report on last moment

They wear professional dresses and bully the accounts department with their big name tag.. But when it comes to owning up the responsibility, they are not confident of  whatever they have done...

Just a day before Financial Technologies (FT), the MCX Group's flagship company, planned to meet its shareholders at the annual general meeting in Mumbai, its auditor Deloitte Haskins and Sells has withdrawn its audit report saying that the company's standalone and consolidated results are not to be relied upon. FT is the promoter of the National Spot Exchange (NSEL) which defaulted on 5,500 crore of payments to investors.

On Tuesday, FT informed the BSE that it has postponed its shareholders' vote on adoption of the company's balance sheet and profit and loss accounts for the fiscal year ended March 31, 2013. FT has also put on hold the ratification of payment of interim and final dividend to shareholders and re-appointment of Deloitte as its auditor. "As per our consistent policy, we do not comment on client proprietary matters,'' a Deloitte spokesperson said to a specific query on why it took 45 days to express its reservations about FT balance sheet for FY13.

A source close to Deloitte, however, said NSEL auditor's decision to withdraw its report prompted them to do the same on FT. In FY12, an affiliate of Ernst & Young was the auditor to NSEL and Mukesh P Shah audited it in FY13. FT said that Deloitte had to withdraw its report as the auditors of NSEL withdrew their report on September 21. The audit report was signed before NSEL payment crisis broke out. NSEL's revenues are regrouped in the FT's balance sheet.

"It is unusual in India and anywhere that auditor has withdrawn its report after it was signed by them," said Mukund Chitale, chairman of National Advisory Committee on Accounting Standards. "Given the circumstances involving NSEL and its parent FT, the auditor's move can be termed as practical. The Standard on Accounting 560 talks about auditor's responsibility relating to subsequent events in an audit of financial statements."

After the NSEL crisis broke out, FT, in August, used $107 million from its accounts to prepay its foreign currency and ECB loans and fund the working capital needs of its overseas ventures. "FT Group pre-paid $76 million of its foreign currency & ECB loans to various lenders and $14 million is in the process of pre-payment with respective lenders out of the total amount remitted to FTGIPL, being the SPV for investments in overseas ventures.

The balance $10 million is kept for working capital for its overseas stock exchanges. With regards to remittance of $10 million to FTSPL, being SPV for investments at the Singapore Mercantile Exchange, was for maintaining the minimum capital adequacy as required," FT said.

Meanwhile, on Tuesday, NSEL stared at the sixth straight default. Details on NSEL website showed that the exchange had received just 11.28 crore until Monday against the 174 crore it required towards payments to investors.

http://economictimes.indiatimes.com/markets/stocks/market-news/deloitte-withdraws-financial-technologies-audit-report/articleshow/23015024.cms 

PWC again summoned for teaching them law

The income tax (I-T) department, probing a charge of Rs 2,500-3,000 crore tax evasion by the Indian arm of Nokia, the Finland-based telecom multinational, has summoned the company's audit firm, Price Waterhouse and Co.

The latter issued a statement that, "The department has called us as they are seeking our inputs on this. We will extend full cooperation". A questionnaire sent to Price Waterhouse was not answered.

The audit for Nokia was done by four officials of PWC from its Delhi branch and they signed the audit report. I-T department sources allege misrepresentation of facts in the report and has also seized emails, described as “key evidence”. The audit firm and Nokia have both been summoned on Wednesday, said the official.

K Baskaran, public relations officer for the chief commisioner of income tax here, had said, "It has been gathered that Nokia India has been making remittances to its Finnish parent, Nokia OYJ, as payments for software supplies since 2005. The above payments for software would attract TDS (tax deducted at source) as per the provisions of the I-T Act, 1961. But is the learnt that the assessee company has not made any TDS on the above software payments. In order to gather the relevant evidence on the issue, a survey has been organised.”

Adding: "Prima facie, there appears to be some defaults with respect to TDS deductions on royalty payments made to its parent company at Finland. It is also observed that the company has changed its accounting model and is in the process of re-organising the existing business to bypass certain direct and indirect tax liabilities."

Nokia India had paid around $5 billion as royalty in the last six years and the TDS amounts works to $500 million, said an official, who didn’t want to be named.

http://articles.economictimes.indiatimes.com/2013-01-13/news/36311403_1_nokia-india-nokia-sales-nokia-corp

http://www.business-standard.com/india/news/i-t-summons-nokia-auditor-pwc-arm-in-tax-evasion-case/498870/

High Standards of Big 4 in US

Regulators still are finding a high level of serious deficiencies in the work of major audit firms, continuing a trend begun last year, a member of the U.S.'s audit-industry oversight panel said.

Most of the Public Company Accounting Oversight Board's 2011 inspection reports of the biggest firms have yet to be issued, but they will show a continued "spike" in audits found to have serious problems, PCAOB member Jeanette Franzel said in a speech in Chicago on Thursday.

In some cases, Ms. Franzel said, the board's inspectors found that auditors gave their clients a clean bill of health even though the audit work wasn't completely or properly conducted, or the company's financial statements were contradicted by other evidence.

Last year, in reports issued on 2010 inspections, "we saw a high level of serious inspection findings, an increase over previous years," and that trend remains in the 2011 reports, Ms. Franzel said. In the reports issued last year, the board found deficiencies in nearly a third of the audits they examined at the Big Four accounting firms—PricewaterhouseCoopers LLP, Deloitte & Touche LLP, Ernst & Young LLP and KPMG LLP.

The PCAOB conducts annual inspections of the biggest firms, scrutinizing a sample of their audits. The inspections focus on audits that the board believes are at highest risk for problems, so the PCAOB says the results may not reflect how frequently a firm's overall audit work is deficient. The inspections are intended only to evaluate a firm's performance and point out areas for improvement, so offending firms aren't subject to penalties.

PCAOB findings of problems are "to be taken seriously and firms will continue to work on areas that need to be improved," said Cindy Fornelli, executive director of the accounting industry's Center for Audit Quality.

The only Big Four firm with a 2011 report issued thus far is KPMG, in which the PCAOB found deficiencies in 12 out of the 52 audits they examined

Bad days ahead for Big 4

The Big Four global auditors could be broken up, leaving them susceptible to takeovers if radical European Union plans to boost competition go ahead, a UK auditing official said on Tuesday. 

EU Internal Market Commissioner Michel Barnier is due to publish a draft law in November to curb what he sees as a conflict of interest when auditors check the books and supply lucrative consultancy services to the same customer. 

Auditors, KPMG, Ernst & Young, Deloitte and PwC, check the books of nearly all big companies in the world. A copy of Barnier's draft law seen by Reuters proposes that auditors be banned from offering consultancy services to the companies they audit, or even banned from consulting altogether - a move that could force the firms to split their operations. 

Breaking up the Big Four audit firms would make them more susceptible to be taken over by emerging Chinese firms, a UK audit official said on Tuesday on condition of anonymity due to the sensitivities involved. 

Barnier has trailed his plans for a year and the industry had hoped they would be watered down by the time he formally proposes them in November. To reinforce independence and professional scepticism, the prohibition of the provision of non-audit services to the audited entities and even the prohibition of the provision of non-audit services in general would effectively address this issue, the draft said. 

Better audits and more informative audit reports will enhance confidence in the markets while also informing stakeholders of any problems with regards to any particular entity, the draft added. The European Parliament, which will have the final say with EU states, gave the plans its broad backing this month. 

Auditing industry officials estimate that 28-30 % of global revenues come from statutory audits, with about 18% from non-audit services provided to the same audit client. This means that about half of total revenues is earned from providing consultancy services to clients which are not being audited as well. 

Barnier has chosen to legislate in the form of a regulation, which will be directly binding on EU states, giving no room for local discretion. Britain, as home to the Big Four's European base, is likely to oppose some of Barnier's more radical proposals though its Office of Fair Trading said in July a full blown competition probe into the sector is warranted. Accounting officials say such a probe would become redundant if pro-competition elements in Barnier's draft make it onto the statute book.

http://articles.economictimes.indiatimes.com/2011-09-27/news/30208236_1_auditing-barnier-consultancy 

Tracing KPMG

Switzerland-based KPMG (Klynveld, Peat, Marwick and Goerdeler)

Glorified Audit Practices at PWC

Five audit firms of Price Waterhouse India have admitted to the US markets regulator, the Securities and Exchange Commission (SEC), that deficiencies in their auditing process were not restricted to Satyam Computer , but extended to other companies audited by them in India as well.

This disclosure by PW India is in two documents released by the SEC on April 5 while concluding its findings on the Satyam accounting fraud case. For five years, between 2004 and 2009, B Ramalinga Raju, disgraced founder and former chairman of Satyam, booked fictitious revenues and inflated bank balances, right under the noses of the auditors from PW India. The main auditing practice in which the SEC found PW India auditors to be lax relates to not directly confirming cash balances with banks, but instead relying on documents supplied by the company.

Satyam overstated its cash balances with banks by nearly $1 billion without being detected by PW India's auditors. "Respondents failed to exercise appropriate professional scepticism," the SEC said. After the Satyam fraud was unearthed, PW India reviewed its other companies for similar deviations, according to disclosures made by the audit firm to the SEC. It is not known how many clients PW India audited or whether it found similar deviations. PW India declined to participate in the story.

Instead, a PW India spokeswoman referred to a press release issued by the audit firm in the aftermath of the SEC findings. In the release, PW India said it "neither admits nor denies the US regulators' findings", while agreeing to pay the $7.5-million penalty demand raised against it. In a related development, the Institute of Chartered Accountants of India (ICAI) - the Indian accounting regulator that has largely been a bystander in the whole matter - has sent notices to PW India audit firms. "Price Waterhouse has paid the fine as a firm," says G Ramaswamy , president of ICAI.

"So, we have asked all PW firms to explain the order." Under the ICAI Act, a firm doesn't register with the institute, its partners do. The ICAI, therefore, can initiate action only against the partners , not against the firm that employs them. The two PW India partners who had approved Satyam's cooked books, Srinivas Talluri and Subramani Gopalakrishnan, are in jail.