What Blockchain Has to Do With Indian Ban on PwC

On Jan.10 the Securities and Exchange Board of India (SEBI) barredPricewaterhouseCoopers (PwC), one of the “Big Four” accounting firms, from auditing India listed firms for two years for failing to spot $1.7 bln accounting fraud at IT services company Satyam Computer Services.

The Satyam accounting fraud scandal followed by its downfall broke on Jan. 7, 2009 when Satyam’s then chairman, Byrraju Ramalinga Raju admitted to fictitiously overstating the company’s cash balance by $1.7 bln or by 94 percent with the help of its auditor PwC. Due to this accounting scandal, Satyam’s shareholders lost as much as $2.2 bln as its stock value tanked.

As the independent guarantor of Satyam’s financial information, PwC — following in the footsteps of Arthur Andersen — ignored the “glaring anomalies” in the financial details reported by Satyam, which inflated its revenue with 7,561 fake invoices.

Arthur Andersen was auditor of Enron Corp., whose shareholders lost $74 bln in the all-time worst US corporate accounting scandal in 2002. Arthur Andersen not only breached public’s trust by aiding in Enron’s accounting fraud but went a step further by obstructing justice as well.  Arthur Andersen’s accountants rolled up their sleeves and shredded tons of Enron’s fraudulent accounting/audit records as the company’s billions in losses hidden in off-the-balance-sheet-offshore-entities came under US government scrutiny. The US Department of Justice (DOJ) shuttered Arthur Andersen on March 14, 2002, by charging it criminally.  This reduced the number of worlds big accounting firms from “Big Five” to “Big Four.”

The triple-entry accounting system makes debut on Blockchain

As the sun set in India on Satyam and PwC due to their collective corrupt undertakings, in the land of the raising sun—Japan–a new triple-entry accounting ledger system made its world debut on Jan. 9, 2009.  A programmer (or group of programmers) using the pseudonym Satoshi Nakamoto launched the groundbreaking Blockchain network and the first units of the Bitcoin cryptocurrency, allowing people to send it, across borders, peer-to-peer over the Internet, in a trusted and secure manner.

Nakamoto’s Blockchain technology was the first working example of a triple-entry accounting system, which was first proposed by Professor Yuir Ijiri, CPA in 1989, followed by cryptographer Ian Grigg in 2005. Defined as an open, distributed ledger–Blockchain technology records and verifies transactions without any trusted central authority. Blockchains are resistant to modification of data and cannot be altered retroactively. The technology greatly reduces the potential for errors when reconciling complex and disparate information from multiple sources.  Because every transaction is recorded and verified, the integrity of financial records is guaranteed, making the falsification or destruction of the records practically impossible.  Blockchain technology is designed to ultimately reduce fraud, as well as the need for auditing resources.

India and Blockchain

India has not made accounting on Blockchain with its triple entry accounting system a mandate yet. Under the Companies Indian Accounting Standards Rules (Ind AS), 2015 G.S.R. 111(E) various classes of companies are required to use a double entry accounting system, that was  formulated in Korea during the Goryeo dynasty (918-1392)…

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