Why Auditors Are Suddenly Bailing on Clients in India

Auditors for Indian companies have been quitting at an accelerated pace. Audit firms entrusted with ensuring the accuracy of financial reports of at least 30 listed companies abruptly resigned in the first five months of the year, almost double the 16 for all of 2017. These departures come as India’s regulators are cracking down on governance lapses and outright corporate fraud, part of Prime Minister Narendra Modi’s efforts to recast the image of Asia’s No. 3 economy as a corruption-free place to do business.

In January, the Securities and Exchange Board of India (Sebi) slapped a two-year ban on the local unit of PricewaterhouseCoopers LLP for failing, a decade ago, to report fudged invoices worth more than $1 billion at IT services firm Satyam Computer Services Ltd. (Price Waterhouse has challenged the ban in court, saying there was no “intentional wrongdoing.” A spokesperson for the company said it had no further comment.) The punishment was a first for a company of PwC’s stature, said Pranav Haldea, managing director at Prime Database, a capital market research provider, and will make auditors more careful about whom they associate with. Then, in May, the Ministry of Corporate Affairs enacted a change to the Companies Act so that an entire audit firm can be held accountable for the misdeeds of a single partner -- a departure from past practice where liability devolved only on the people involved. Within weeks, 15 auditors dropped companies they were evaluating.