PWC: What's up?

Fund inflow in audit cos against FDI norms

Pankaj Doval, TNN



NEW DELHI: Serious violations of accounting principles as well as major financial irregularities have been detected in several entities of PricewaterouseCoopers India (PwC India), which would seem to indicate that the company has been wrongfully dressing up its own books and those of its network audit firms in order to remain profitable. Several PwC India top honchos, including chairman Deepak Kapoor and some senior directors, signed backdated invoices, which smells of large-scale financial manipulation, and could spell further trouble for the company already tainted by being the auditor in the high-profile Satyam scam of 2009.

The violations at PwC India have the potential to land it in serious trouble with various regulators like the corporate affairs ministry, the Reserve Bank of India (RBI) and auditing watchdog Institute of Chartered Accountants of India (ICAI).

They could also contravene the Indian Penal Code as falsification of accounts and misrepresentation of facts is a criminal offence.

Papers accessed by TOI show that PwC India entities, including tax and business advisory services company PricewaterhouseCoopers Pvt Ltd (PwCPL) and auditing firm Price Waterhouse (PW), had been falsifying accounts and backdating and manipulating invoices, to show money received as 'grant' after close of a particular financial year as income of the earlier year.The inflow of funds from PricewaterhouseCoopers Services BV, Netherlands, was first shown as 'reimbursement of expenses' - including in representation made to banks - but later invoiced as 'support' and finally as 'grant'. Surprisingly, the books of accounts classified this as 'sundry income', which again points to misrepresentation of facts.

Alarmingly, the infow of funds into auditing firms like PW and Lovelock & Lewes (LL) is in itself a violation of the country's FDI rules as existing regulations do not permit foreigners to either practice auditing or even to fund audit firms in India. PW and LL are audit firms registered with the ICAI and are thus prohibited from accepting any foreign investment.

When contacted, a spokesperson for PwC India said, "The documents TOI purports to have in its possession, if authentic, are private and confidential business documents. Also, as a policy we do not comment publicly on our internal matters. PwC has complied and will continue to comply with applicable laws, regulations, and professional standards." However, PwC India did not comment on any questions raised by TOI regarding the backdating of invoices and the possible involvement of its senior officials in the matter. TOI has already reported on the inflow of over Rs 200 crore from overseas into PwC India entities that enabled them to remain profitable and not sink in losses. The government had begun an inquiry into the matter.

According to the papers seen by TOI for fiscal 2009-10 and 2010-11, there were several instances of backdating of invoices and fictitious transactions. An amount of $3.93 million came into tax and business advisory services company PricewaterhouseCoopers Pvt Ltd (PwCPL) in end of June 2010 (fiscal year 2011), but was shown to have come in FY10 through backdating of invoice to March 31, 2010. This helped the company boost its revenues as this money was classified as sundry income.

Again, an amount of $7 million came into PwCPL in the first week of May 2011 (FY12), but was illegally shown in the books of FY11 through backdating of invoice to March 31, 2011, signed by Kapoor. Similarly, a sum of $7.5 million flowed into PwCPL in the third week of May 2011 (FY12), but was accounted for in the previous fiscal (FY11) by backdating of invoice to March 31, 2011. Another inflow of $3.5 million in PwCPL in end-June 2011 (FY12) was falsely shown in the books of FY11 through the backdating of invoice to the previous fiscal. The papers also showed a similar trend in the books of PW where an inflow of $1 million in end of June 2010 (FY11) was invoiced for in the previous fiscal (FY10).

A thorough investigation of the papers showed that the money from PricewaterhouseCoopers Services BV (Netherlands) came into PwC India entities as part of a broader 'grant agreement' (or addendum thereto) signed between the international company with PwCPL and other audit firms for enhancement of resources and skills, which in itself raises several question marks over why such a funding would be done.

However, in several cases the grant agreement in itself was signed months later than the dates mentioned on the invoice. For example, the payment of $7 million invoiced on March 31, 2011 was based on an agreement that, surprisingly, had been signed by PricewaterhouseCoopers Services BV on April 14, 2011. Importantly, as mentioned earlier, the money had actually flowed in only in May 2011. This clearly points to violations by PwC India and its senior staff to dress up and fortify its sagging books and make them look profitable.

Source: Times of India, Delhi, 12 March 2012

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Surprise! Nearly half of IndiGo foreign-owned

Tushar Srivastava,

Caelum Investments, a little-known US-based firm owns 48% of IndiGo, company information accessed by HT has shown revealing details that were so far unknown about ownership and shareholding structure of India's most profitable airline.
 Caelum Investments is owned and run by Rakesh Gangwal, a  former CEO of US Airways.

Gangwal and Rahul Bhatia, group managing director of InterGlobe Enterprises, together set up IndiGo in 2006.

Other stakeholders include IndiGo's parent company InterGlobe Enterprises which owns 51.12%. Kapil Bhatia, executive chairman, InterGlobe Enterprises, his son, Rahul, Gangwal's wife Shobha and sister Asha Mukherjee hold the remaining stake.

Company officials confirmed the shareholding structure.

"Caelum Investments is owned by Rakesh Gangwal, who is based in Virginia," Aditya Ghosh, president, IndiGo told Hindustan Times.

Since its launch in 2006, the Gurgaon-based carrier has never shared details about its promoters and shareholders.

Caelum, sources said, is a Limited Liability Company registered in Delaware, USA.
"IndiGo's foreign ownership also explains it's less than enthusiastic response to foreign direct investment by foreign airlines," said an aviation expert.

IndiGo has reported profits for the last three years.

Company officials said the carrier clocked profits of R650 crore in 2010-11 and expects to make a profit this fiscal too at a time when other domestic carriers are expected to post combined loss of $2.5 billion (about R12,500 crore).

Experts and IndiGo's peers, however, have contested the airline's profitability claims.

"People like Vijay Mallya have questioned IndiGo's profitability. In a way, you can argue that its profitability is a precursor to an IPO," said Saj Ahmad, a London-based aviation analyst.
"If any airline has a long-term focus on profit and loss it is Singapore Airlines, which a couple of days ago gave its co-pilots the option to take two years' leave without pay because of the downturn," said aviation expert Captain Mohan Ranganathan. "If any airline is claiming to make a profit during this period it is far from the truth."

Ghosh said the carrier does not have any plans for getting listed on the stock exchanges.

"A company is listed to raise more funds. You don't have to be listed to be transparent," Ghosh said. "Our auditors are KPMG and internal auditors are PwC. We file our results with the aviation regulator and the registrar of companies."

"It's no surprise people question their profits and sustainability, particularly since its placed a massive order for 150 A320Neos when it hasn't even finished inducting the 100 A320s ordered in the mid-2000s. With under 40 destinations, one has to wonder why it doesn't have more routes," Ahmad said.

Source: Hindustan Times, New Delhi, 12 March 2012