The real stories of Audit firms

Just when the whole finance world is trying to come over the 7k cr shock and trying to identify the scapegoat for the scandal .The name which is appearing is that of the Auditors - Price Waterhouse Coopers(PWC).SEBI has already started its action by sending its team to the audit firm and to satyam.Unsurprisingly, this is not the first time PWC has been in such a kind of scandal.
PWC were the auditor's for the erstwhile Global Trust Bank (GTB) promoted by another Hyderabadi Ramesh Gelli which was taken over by Oriental Bank of Commerce.In that case,RBI had prohibited PWC from auditing Banks until the prohibition was removed in the month of march,2008.
There was similar kind of offence faced by former PWC audit partner Robert A.Fish and had to settle for civil suit in US .According to the SEC, in the course of PwC's 2000 audit, Fish failed to exercise due professional care and obtain sufficient competent evidential matter to verify the existence of Take-Two's $104 million domestic accounts receivable balance, the company's single most important asset as of Oct. 31, 2000, and which Fish had identified as a higher risk audit area.Under Fish's supervision, PwC sent requests for confirmation of Oct. 31 accounts receivable balances to 15 of Take-Two's customers. In response, PwC received only one confirmation, which turned out to be false, representing less than two percent of the total domestic accounts receivable balance, according to the commission.The order said that Fish performed alternative audit procedures to verify the accounts receivable, but those procedures were insufficient under Generally Accepted Auditing Standards (GAAS).In addition, the Fish failed to exercise due professional care and skepticism in testing the adequacy of Take-Two's 5-percent reserve for estimated sales returns as of Oct. 31, as required by GAAS, according to the commission.The SEC said that during the 2000 audit, Fish and others at PwC, at his direction, examined five product returns made after year end but failed to compare them with original sales invoices. "Had he done so, he would have discovered that in four of the five instances, more than 75 percent of the games purportedly purchased were returned," the SEC stated.The four sales with abnormally high return rates were in fact fraudulent parking transactions, the SEC asserted.
Interestingly ,PWC is not alone as far as fault in auditing is concerned .KPMG failed to do the proper evaluations and testing procedures to back up its assessments of 10 clients, according to the most recent inspection report of the Big Four firm done by the Public Company Accounting Oversight Board. The PCAOB, which inspects the largest of the auditors annually, cited instances where the firm should have performed additional tests to confirm its clients' valuations and assertions, as well as to notice instances where a client had strayed from GAAP.
PCAOB's critiques of the Big Four's 2004 audits list several mistakes for each firm — specifically, the board found deficiencies in the audits of 9 PricewaterhouseCoopers clients, 10 Ernst & Young clients, 11 KPMG clients, and 17 Deloitte & Touche clients. Except for PwC, each firm had at least one error that appeared "likely to be material to the issuer's financial statements."Using the terms "failed" and "failure" numerous times, the PCAOB cited the firms for basic accounting issues, some of which relate to lease and tax accounting, revenue recognition, and goodwill-impairment testing. All four of the reports, and the PCAOB's previous evaluations of the Big Four's work, noted that in some instances the firms did not "identify or appropriately address errors in the issuer's application of GAAP." The inspections led to restatements for one client of each auditor (two, in KPMG's case). The bulk of the board's criticisms were related to the auditors not properly documenting their work.
It seems PWC India should not blamed alone for its serious offence because it has just inherited from its parent company .

Source: CFO.com