ICAI vs Big Four Firms: Five PwC Affiliates get Disciplinary Committee Orders over Misconduct Allegations [Read Order]

Previously, a similar order against another Big Four firm's affiliates in India was taken down following a stay by the Delhi High Court
ICAI - Big Four Firms - PwC - Chartered Accountants of India - ICAI disciplinary action - taxscan

The Institute of Chartered Accountants of India ( ICAI ) has found that five affiliates of auditing giant PricewaterhouseCoopers ( PwC ) were violating local laws.

In an order released on Friday, ICAI stated that its disciplinary committee determined the affiliates of the Big Four firm had entered into various agreements—such as Accession Agreement, Name License Agreement, and Firm Services Agreement—that clearly violated the Chartered Accountants Act, 1949, as per reports from Business Standard.

The committee also noted that personnel from the respondent firms used email IDs ending with ‘@pwc.com,’ indicating a close association with the international entity. Additionally, the order revealed that there was sharing of human resources, infrastructure, brand name, and contact details, effectively demonstrating that PwC was controlling the affiliate firms. Substantial payments made by affiliates to PwC were deemed allocations of costs incurred by PwC services rather than genuine payments for services rendered.

The order noted that these payments were for the benefit of using PwC marks and indirect benefits from referrals of work obtained from other member firms. It was also found that the respondent firms charged a percentage of their fees to other PwC Network members outside India for work conducted for Indian clients.

It was observed that, “These are payments made by the Respondent firms for obtaining the benefit of using PWC marks and indirect benefit of referral of work obtained from other member firms. Incidentally, from perusal of the invoice bills brought on record by the Respondent firms, it is noted that the Respondent Firms charges percentage of share of its fees from other member of PwC Network outside India for work conducted by them for the Indian client companies.”

Under the Chartered Accountants Act, 1949, foreign audit firms cannot register or operate in India. ICAI has instructed these firms to immediately cease their existing arrangements with multinational entities. Additionally, two partners from these affiliate firms were fined Rs 500,000 each and removed from the Register of Members for three years.

Price Waterhouse and affiliates expressed disappointment with the orders, stating it was against the court proceedings before the Hon’ble Delhi High Court, which included the ICAI Disciplinary Committee counsel. They have requested the ICAI to take down the orders from their website, asserting that these issues are industry-wide and do not pertain to their audit procedures or quality.

In so far as action against Multinational Accounting Firms (MAFs), it may please be noted that the issue was also dealt with by the Hon’ble Supreme Court vide its judgment dated 23.02.2018 in S. Sukumar vs. ICAI.

The issue for consideration by the Supreme Court was as to whether the MAFs are operating in India in violation of the law in force in a clandestine manner and no effective steps are being taken to enforce the said laws. If so, what orders are required to be passed to enforce the said law?

The Hon’ble Supreme Court after referring to the Report dated 15.09.2003 of the Study Group of ICAI & Report on Operations of MAFs in India dated 29.07.2011 submitted by the Expert Group of ICAI and considering various provisions of the Chartered Accountant Act, 1949 and the action initiated by the ICAI till then, the Hon’ble Court has directed ICAI to further examine all the related issues at an appropriate level as far as possible within three months and take such further steps as may be considered necessary”, ICAI stated when enquired about the  previous orders.

Read More: Update on Multinational Accounting Firms vs Institute of Chartered Accountants of India Tussle: ICAI responds to Queries, says Action under Statutory Powers

ICAI President Ranjeet Kumar Agarwal stated that a Committee for Aggregation of CA firms has been established and is effectively working on framing guidelines for networking, multidisciplinary partnerships, international networking, mergers and demergers, and advertising. He mentioned in an interaction with Business Today that these efforts aim to empower Indian CA firms to become global. Agarwal also noted that ICAI plans to make a presentation on this before the Ministry of Corporate Affairs, which is keen on supporting the growth of Indian CA firms.

Currently, India has about 96,000 CA firms, with 75,000 being small and medium-sized proprietorships, and 24,000 being partnerships with 2 to 100 partners. Out of these, around 400 firms have 10 or more partners. Agarwal emphasized the need for incentives, policies, and tools to facilitate mergers, allowing these firms to grow larger. He stressed that Indian firms have the potential to expand globally but require some support.

Previously, a similar order against another Big Four firm’s affiliates in India was taken down following a stay by the Delhi High Court.

Read Also: CA Misconduct: Supreme Court dismisses Decade Old Challenge, upholds Referral Powers of ICAI Board of Discipline

Price Waterhouse expressed confidence in the judicial process to uphold their position on the matters.

ICAI also debarred a related Chartered Accountant for 3 Years in the PwC-related Misconduct Case and slapped a hefty fine of Rs. 30 Lakhs for “protection and promotion of the brand”.

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