Satyam, Kingfisher, PNB to Jet: How auditors failed Indian investors

Despite layers of oversight in place, major corporate frauds have continued to slip through the cracks—exposing a recurring issue with the way statutory audits are being conducted.

- ABHINANDAN MISHRA

Time and again, financial statements riddled with manipulation have been signed off without question. And the institutions tasked with catching those signs early have either been caught looking the other way or simply missing them.

Over the last two decades, global giants like PricewaterhouseCoopers (PwC), Deloitte, Klynveld Peat Marwick Goerdeler (KPMG), and Ernst & Young (EY)—along with their Indian counterparts—have failed to flag several of the country's most significant financial scandals. They either missed clear signals or gave clean audit reports to companies that were later found to have committed serious accounting fraud, fund diversion, or worse.

Satyam Computers is perhaps the most well-known example. The company, once a star of India's IT sector, collapsed after its founder admitted to inflating revenues and falsifying accounts by over Rs 1,700 crore.

PwC, the auditor at the time, had signed off on the books without raising red flags. It wasn't until 2009 that the fraud came to light, and by then the damage was long done.

The Securities and Exchange Board of India (SEBI) barred PwC from auditing listed companies for two years in 2018. Global Trust Bank, another case from earlier in 2003, also saw PwC (via Lovelock & Lewis) failing to flag irregularities laritiesresulting in bans from financial auditing.

The others don't escape scrutiny either.

In the Infrastructure Leasing & Financial Services (IL&FS) default, one of the country's biggest financial meltdowns, Deloitte was the statutory auditor for several group companies, but didn't flag growing liabilities. The company continued to get clean audits even as its debt piled up. EY and Deloitte also featured in the National Stock Exchange (NSE) co-location scandal, where brokerage firms allegedly got unfair access to trading systems. Their audits didn't catch what regulators later found deeply problematic.