Locate the PCAOB's Settled Disciplinary Order against the auditors of the Satyam financial statements, which can be found on the PCAOB's website under the link for "Enforcement" (see PCAOB Release No. 105- 2011-002 dated April 5, 2011), and review the sanctions imposed on the audit firms within the PW India network. You will see that the PCAOB censured all five firms in the PW India network, even

Question

though three of those firms did not participate in the audit of Satyam’s financial statements. Discuss why the PCAOB charged all five firms rather than only charge PW Bangalore and Lovelock & Lewes?

What will be an ideal response?

Answer 1

According to the PCAOB Settled Disciplinary Order, the five PW India firms, along with five other
India-based member firms, operated as a domestic Indian network of related audit firms. The firms
in the network operated their audit practice under resource sharing arrangements that facilitated the
provision of audit services as a network of firms. Lovelock & Lewes and PW Calcutta both had partners
and staff who performed audit procedures for clients of their firms and other firms in the network.
Additionally, there was a common leadership in the assurance practice of the PW India firms, including
the Assurance Leader, Risk and Quality Leader, Learning and Education Leader, Independence Partner,
and Chief Ethics Officer. They also shared the same Territory Senior Partner and Managing Partner, in
addition to sharing office space and telephone numbers.
The PCAOB sanctioned all five firms due to the observation of what the PCAOB described to
be larger problems symptomatic across the network of firms that were not limited to just the Satyam
engagement. For example, the failures in the cash and accounts receivable confirmation process on
the Satyam engagement appeared to be present on other engagements conducted by the PW India
firms. In the PCAOB’s view, the network’s system of quality control failed by not detecting, for several
years and across many engagements, the lack of compliance with PCAOB standards related to the
confirmation process and the failure to comply with audit documentation requirements, especially
once the PCAOB’s inspection was announced.