On Jan.10 the Securities and Exchange Board of India (SEBI) barred PricewaterhouseCoopers (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.”
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 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).
While breaking from tradition is challenging, both industry and the Indian government at the federal and state level are pushing towards adopting Blockchain technology with its triple-entry accounting system with great force to transform India’s economy—which is the seventh largest and the fastest growing in the world.
The most striking example of the Blockchain technology transformation in India has been scandalous Satyam’s sale in 2012 to its rival Tech Mahindra that initiated multiple Blockchain initiatives during the last quarter of 2017. Australian energy trading company Power Ledger and Tech Mahindra are testing microgrids on Blockchain, new platform enables households and businesses to trade power from solar panels and battery storage, and it also facilitates the crowdfunding (ICO) of renewable energy assets. Tech Mahindra also announced that it is working on developing a solution using Blockchain technology for vehicle registration and related activities.
On the federal government side, the State Bank of India with assets over $460 bln promised that it will implement Blockchain solutions in a number of financial processes including the management of its Know Your Customer (KYC) system. “In the future, virtually every function in the world of Financial Services will be displaced, disintermediated and decentralized,” explained Ron Quaranta, Chairman of the Wall Street Blockchain Alliance, which has partnerships with Asia Pacific Countries, during an American Institute of Certified Public Accountants/CPA.com Executive Roundtable.
On the state government side, Andhra Pradesh became the first state in the country to pilot Blockchain technology in two departments, land registry and transportation. This was followed by the state of Maharashtra announcing the use of the Blockchain-integrated platform to secure various government data, potentially including land ownership records as well.
Currently, India is in the process of developing Blockchain and cryptocurrency legislation.
In April 2017 the Indian government formed an Inter-Disciplinary Committee chaired by Special Secretary (Economic Affairs) to examine the existing legal framework with regard to cryptocurrencies to formulate appropriate regulations.
In June 2017, India’s Prime Minister Narendra Damodardas Modi announced a complete overhaul of India’s goods and services tax (GST) system. But there is yet to be clarity on the application of international, federal and state level GST taxes on Blockchain technology and cryptocurrencies.
The Indian Supreme Court pushed the government -- central bank and other agencies --to respond to calls to regulate cryptocurrencies as soon as possible.
In response, India's finance minister, Arun Jaitley, clarified that the government does not recognize cryptocurrency as legal tender.
Selva Ozelli, Esq., CPA is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for TaxNotes, Bloomberg BNA, other publications and the OECD.
Disclaimer. The views and interpretations in this article are those of the author and do not necessarily represent the views of Cointelegraph.
Follow us on Facebook