Auditors Price Waterhouse….You are sealing your own Fate in this Satyam fraud!

The battered auditors of Satyam,Price Waterhouse,have just issued a letter dated January 13,2009 addressed to their Client,Satyam Computer Services Ltd and marked for the attention of the three New Directors in the New Board and the Company Secretary….This Letter is also been cced to SEBI,RBI,BSE,NSE,New York Stock Exchange,ROC,Hyderabad and the Central Board of Direct Taxes

The Letter reads like a Confession of sorts.First a gist of Some important extracts and then later my observations are as below

  • The letter is signed by a Partner (Name Not Given) on behalf of Price Waterhouse.It is not signed by PWC India Chairman,Ramesh Rajan,who ,a few days ago, sent an email to all employees intimating them that they have begun a comprehensive internal review and requesting them not to discuss the Satyam Issue or offer any comments to the Press or external Sources
  • It refers to the Audit Period from Quarter ending June 30,2000 to Quarter ending September 30,2008…that’s Eight and a Half Years that included 34 quarters
  • PW planned and performed the required audit procedures on the Financial Statements Prepared by Management,examined the books and records produced by the Management and relied on Management for Controls over Financial Reporting,Information and Explanations and Verbal and Written Representations
  • In light of the Confession of Fraud by the ex-chairman and promoter of Satyam,Ramalinga Raju,PW warns that their opinions on the financial statements may be rendered inaccurate and unreliable
  • In accordance with the Guidance Note of January 2003 of the ICAI for Revision of the Audit Report and which prescribes steps the auditor must follow to prevent reliance on audit reports under such circumstances,PW has stated that their audit reports and opinions in respect of the Financial Statements for the Audit Period should no longer be relied on
  • In USA,Under GAAP too such a requirement as above is prescribed…Under Sec10A of the US Securities and Exchange Act of 1934,the Information contained in the Chairman’s Letter indicates that an illegal act could have occured.PW advises the Board of Directors to conduct an independent investigation under this US Law section to unearth this illegal act. 

My Observations

  • Partner Signing this Letter on Behalf of PW should have had the Courage to also insert his Name
  • The Letter is dated January 13,2009 and was sent by Fax and Courier on same day and January 14,2009 advising the Board of Directors to commence an Independent Investigation…..Before this already  several Class Action Law suits were filed in the USA and several Authorities in India had already commenced their investigation and infact there were Search and Seizure Operations in the Offices of PW in Hyderabad 
  • Interestingly no Copy of the Letter has been marked to ICAI,under whose Guidance Note of January 2003,PW  has taken this step of writing this letter
  • It is truly amusing and rather ironic that PW is advising the Board of Satyam to commence independent investigation under US Law ! and not any Indian Law !
  • For Eight and a Half Years,PW relied on only Management and did not seek direct and independent verification from bankers for the increasing Value of deposits shown !
  • Earlier PW has released a note that they had sufficient and appropriate Evidence to support the Satyam audit and had conducted the audit applying generaly accepted audit practice and standards and accounting principles in India….Don’t Insult India !…PW,if you had really followed the correct practice and standards and principles you would have sought independent verification of the assets,especially the huge and significant Bank Deposits that don’t exist !
  • PW,it is truly shocking…For Eight and a Half Years now Your Satyam assigned Audit Teams under Partners,S Gopalakrishnan and Srinivas Talluri failed to detect the Increasing Fictitious Bank Deposits because they continued their negligence and their complacency in simply accepting and relying on management produced records without verifying independently with the banks
  • PW, the fictitious Interest accrued and due on Bank Deposits but not paid by the banks should have raised your Antenna and you should have inquired why the banks had not paid the Interest Quarter after Quarter !
  • PW,you should know that your reappointment as Statutory Auditor is made by the Shareholders at the AGM every year…You are responsible to Shareholders and not to the Promoters or Management on whom you have solely and excessively relied to perform your Audit….By doing so you have sacrificed the Interest of Shareholders who appointed you in the first place and have been ill-advised to hide under the cloak of Client Confidentiality in releasing more Details ! 
  • PW,It’s really uncanny how you somehow manage to get involved in fradulent Companies as statutory auditors !…maybe your destiny is chasing you !….DSQ Software and it’s fraudster Promoter Dinesh Dalmia…then Global Trust Bank with Gelli and Ketan Parekh and now Satyam  with Promoter ,Ramalinga Raju !….It’s speaks very poorly of your Internal Quality Control Systems for your Audit Personnel…Interestingly,your Partner S Gopalakrishnan was the signing partner of the audit report in all three Companies and even more interestingly he continues to serve on the ICAI  for Eleven Years and is in his fourth term…Obviously,PW,you are standing solidly behind him ! It’s costing you Big ! and is now threatening your survival in India !
  • This Satyam Issue and PW has a parallel in JapanIn 2005 there was a Book Keeping Fraud in the Japanese Cosmetic and Textile Giant,Kanebo.This remained undetected by PW’s Japanese Arm,Chuo Aoyama PWC and the Regulator banned this PWC Firm…However PWC formed a New Company ,Arata, with new Partners to take up Audits….Whether this Japanese Pattern will be followed in India too remains to be seen

This is an Indian Nightmare for PW…but when you are caught Sleeping like this for Eight and a Half Years…you just can’t avoid having such nightmares !..the Difference is that When You Get Up the Nightmare is happening for Real !  

One Last Thought for now…cannot but help draw some parallel here between Price Waterhouse and Pakistan…Both begin with ‘P’….Both in Denial and Defiance Mode Initially….Both have precedence where banned outfits reappear in another form to continue operations !

    

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