PWC Audit Scandal and Fraud. Technology Assignment

PWC Audit Scandal and Fraud
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Institutional Affiliate
PWC Audit Scandal and Fraud
Introduction
Transparency in the accounting and reporting of financial data and other valuable information concerning corporate organizations that are listed as public entities makes for one of the crucial elements in the evaluation of their performances in the market by both the existing and potential investors. The decision to invest in a corporate organization or transact in the securities and stock markets is dependent or rather informed by the information revealed by its financial reports and the perceived efficacy of its corporate governance. However, embracing effective corporate governance and ensuring transparency in financial reporting requires adherence to the set standard operating procedures that monitor and control the conduct of all the stakeholders involved in the delivery of the same. The Sarbanes-Oxley (SOX) Act of 2002 or the Public Company Accounting Reform and Investor Protection Act provide an excellent framework for monitoring and controlling the conduct of public companies towards financial reporting and governance. The SOX Act was an endorsement of Senator Sarbanes and Representative Michael Oxley following a streak of corporate scandal and accounting frauds witnessed in the United States in the years 2000 to 2002 CITATION Fle08 \l 1033 (Fletcher, 2008). At the center of one of the biggest corporate frauds in the country that shattered the public’s confidence in financial reporting or disclosure of financial reports were two organizations, Enron and WorldCom. In essence, the SOX Act functions to mitigate the uncertainties created from the potential fraudulent activities in accountancy and auditing of corporate organizations and thus protecting the investors while also restoring their confidence in the stock market. The Act accounts for a significant reduction in corporate fraudulent activities in the United States and around the world through the effective application of its key provisions. An evaluation of the Act’s application in the handling of the Price Waterhouse Coopers (PWC) Audit Scandal and Fraud in India provides an excellent platform for the analysis of some of its primary provisions and their efficacy in reducing corporate fraudulent activity.
The SOX Act and its Role in Reducing Corporate Fraudulent Activity
The SOX Act of the Public Company Accounting Reform and Investor Protection Act functioned to deliver on three primary objectives; mitigating corporate fraud, restoring investor’s confidence in the stock market, and enhancing transparency for increased reliability of corporate financial reporting CITATION Fle08 \l 1033 (Fletcher, 2008). Achievement of the outlined objectives is dependent on the public companies’ ability to adhere to the set requirements of the Act. An overview of the Act highlights the key requirements for compliance to include strengthening of the public companies’ audit committees, the performance of internal control tests, as well as strengthening of the financial disclosures CITATION Fle08 \l 1033 (Fletcher, 2008). Another significant requirement of the Act is for the corporate organizations to put measures towards ensuring that the directors or management and accountants, auditors, or officers involved in developing the financial reports are accountable to the accuracy of the financial statements released by the organization. Failure to meet the outlined requirements allows for the perpetuation of corporate fraudulent activities, which may expose the entities to criminal charges with heavy penalties as stipulated by the Act.
Strengthening of the audit committees plays a significant role in reducing corporate fraud activities as it functions to oversee the organization’s senior management’s decisions on accounting. The new dispensation of the SOX Act increased the mandate of the audit committees to include making approvals on a wide range of services, vetting, and monitoring of external auditors, as well as dealing with complaints raised against the accounting practices of the management CITATION Fle08 \l 1033 (Fletcher, 2008). The increased liability and accountability of the directors and officers involved in the development of financial or accounting reports is also integral to the reduction of corporate fraud activities. The Sarbanes-Oxley Act requires the management’s certification on the accuracy of the accounting reports. False certification of the financial reports may lead to imprisonment of the managers to a jail term of between 10 to 20 years CITATION Fle08 \l 1033 (Fletcher, 2008). Other punitive measures against such offenders include forfeiture of the bonuses, profits, and benefits accrued through the fraudulent sale of the organization’s stock and thus deterring the perpetration of corporate fraud activities. The Act also serves to strengthen the disclosure of financial statements and reports by emphasizing on the adherence to the generally accepted accounting principles (GAAP) and encouraging the disclosure of any of the company’s material arrangement off the balance sheet CITATION Fle08 \l 1033 (Fletcher, 2008). The extreme punitive measures imposed on perpetrators of security fraud offenses include increasing the imprisonment terms to a maximum of 25 years by the SOX Act of 2002 CITATION Fle08 \l 1033 (Fletcher, 2008). The mandatory internal control tests function to increase the efficiency of financial reporting through automation and centralization of the function. Another key element or provision of the SOX Act was the establishment of the Public Company Accounting Oversight Board, which provides a framework for monitoring and controlling the conduct of public accountants and auditors. The PCAOB functions to outline the code of conduct for the public accountants, prevent conflict of interest among public accountants as well as ensuring that the changing of lead audit partners after every five years for listed corporate public entities.
Issues Related to the PWC Audit Scandal and Fraud on Satyam Computers Limited
The arrest of two partners of PricewaterhouseCoopers in January 2009 following exposure of fraudulent activities at an Indian company, Satyam Computer Services Limited echoed the events that led to the enactment of the SOX Act in 2002 at Enron and WorldCom in the U.S. The two PWC auditing partners, S. Gopalakrishnan, and Srinivas Talluri were arrested following investigations into the fraudulent conduct of Satyam in falsifying financial statements on the firm’s profits over years in the stock market CITATION Reu09 \l 1033 ...