Satyam Auditors, Price Waterhouse, issues a statement late today..Let’s put it in perspective

In this unfolding Satyam Saga unleashed by Chairman,Ramalinga Raju’s confession on fudging accounts for years,this evening we had their auditors,Price Waterhouse releasing a statement defending their audit of Satyam ,stating it complied with generally accepted auditing standards in India and that there was appropriate evidence to support their audit

They have also ,under the excuse of client confidentiality,refused to give more details

Come on Price Waterhouse !…what Client !? Satyam !?…legally it is the Shareholders (Satyam has over 2 lakh of them) who have reappointed you at the last AGM as the auditors…you have a fiduciary responsibility to them more than to Satyam…so hiding behind the Coat of Client Confidentiality is clearly ill- advised

It would ofcourse be interesting to see what their ‘appropriate evidence’ is.

But let’s put their role in perspective and in context of the last published Annual Report of FY 2007-8

Relevant Extracts from Satyam’s Annual Report of FY 2007-8 

Pages 39 and 40 

AUDIT COMMITTEE

The Audit Committee consists of 100 percent independent and non-executive directors.There were four Members….Prof M Rammohan Rao,Chairman,Dr (Mrs) Mangalam Srinivasan,Mr T R Prasad,Prof V S Raju….There were seven committee meetings in 2007-8 an were attended by the CFO,Head of Internal Audit and Statutory Auditors as Invitees.The Committee reviewed the adequacy of the Internal Control Systems and Internal Audit Reports and their compliance thereof. 

Page 56

Internal Control Systems and their Adequacy…Part of Managment’s discussion and analysis…Important Points

  • The Internal Audit,an independent appraisal function to examine and evaluate the adequacy and effectiveness of the Internal Control System,appraises periodically about activities and audit findings to the AUDIT COMMITTEE
  • Internal Audit ensures that transactions are executed and assets are safegaurded
  • The AUDIT COMMITTEE was constituted as a sub -committee of the Board of Directors and it consists solely of Independent Directors.The committee also holds discussions with statutory auditors,internal auditors and the Management.It also reviews with the statutory auditors the scope and results of the audit 
  • Compliance with Section 404 of the Sarbanes-Oxley Act 2002
  • Under revised Corporate Governance standards adopted by the Stock Exchanges a Certification has to be made by the CEO and the CFO of the effectiveness of the Internal Control Systems and that they have disclosed any deficiencies and how they were resolved to the Auditors and the Audit Committee

Page 60

Personnel Costs…Part of Managment’s discussion and analysis…Important Points

Personnel Costs were Rs 5045.54 crs ( 62.01% of Revenues ) for an aggregate employee base of 55360 of which 43279 were technical associates,2690 were non-technical associates and 9391 were onsite technical associates

Page 62

Auditors Report to the Members of Satyam Computer Services Ltd  

Point 2 : We conducted our audit in accordance with auditing standards generally accepted in India.Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement….We believe that our audit provides a reasonable basis for our opinion

Point 4 g goes on to give the auditors unqualified opinion that the financial statements that comprise the Balance Sheet,the Profit and Loss Account and the Cash Flow  as on March 31,2008 ,read with the notes give a True and Fair view inconformity with generally accepted accounting principles in India

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Finally Satyam’s Raju resigns shockingly admitting a massive Fraud and share price sinks from Rs 175 to Rs 50 this morning,murdering Shareholders and Capital Markets in one stroke !!!

I had told you Satyam’s Chairman Ramalinga Raju was actually Ravana and he was a goner…just read my blogs of December 17,2008 and December 19,2008…..You cannot believe this guy…he’s got a history of hoodwinking…he bought Rajesh Jain’s Indiaworld for US $ 116 Million in 2000…this was a hogwash deal only to launder Money !

Regulators Move in Now ,this very Minute, and freeze assets of Satyam to try and salvage something ! 

This morning Raju resigned and blew the Satyam share price away from Rs 175 to Rs 50 after releasing a letter claiming that he had committed a fraud and had cooked the Satyam Books for Years…There are Fictitious Assets on the book and understated liabilities of over Rs 1200 crs…There is no Cash of Rs 5000 crores as shown in the Books

This is an extremely sorry Day for Indian Capital Markets…..In one single Stroke,Raju has killed the Trust developed over years by Domestic and Overseas Investors in Indian Companies and their Promoters

Satyam was one of the Three Bellweather IT Stocks along with Infosys and TCS and would you believe it ! …It seems to have been build on Lies and a Pack of Cards !

Raju and Satyam, fooled and shocked all of us…he has made an all revealing Confession after he was cornered and had no place to hide

  • Investors and Shareholders
  • Bankers
  • Institutions
  • Employees
  • Auditors,Price WaterHouse
  • Independent and Non Executive Directors
  • Stock Exchanges in India and Overseas
  • Regulators….ICAI,SEBI,RBI,Ministry of Company Affairs
  • Media

There is no doubt in my Mind that this is a CRIMINAL ACT and can be categorised as both an Acoounting Fraud and a Securities Fraud 

Before any evidence is Destroyed,those responsible directly for this Fraud and those responsible for Dereliction of Duty in and out Satyam must be taken into custody

What the Hell were the Independent and Non Executive Directors,Vinod Dham,Prof Krishna Palepu,Dr Rammohan Rao and Dr Mrs Srinivasan doing…sleeping !? What the hell were the Auditors Price Waterhouse and the Bankers doing !?….How could they show Cash in the Bank of over Rs 5000 crs in the Books when there was no cash at all ! Who valued the Maytas Deal at US $ 1.6 Billion ?…All their Big Reputations are finished in this unfolding sordid Satyam Drama

The Audited Accounts signed by Price Waterhouse for the Half Year at September 30,2008 show cash of Rs 5700 crs and Debtors of over Rs 2000 crs and accrued Interest due from the Bank !……Now Raju claims most of this is fictitious…..How has Price Waterhouse signed without even 50% verification of major assets !

Methinks Price Waterhouse are on the way of Arther Anderson who wound up after fouling up on Enron…atleast in India…One Mr Srinivas Talluri,Partner of Price Waterhouse,Hyderabad, has signed the Accounts….As on March 31,2008 the Balance Sheet Size was shown at Rs 7381 crs….this climbs past Rs 8000 crs at half year September 30,2008…Now Chairman,Raju confesses most of this is fictitious…With Equity at Rs 134 crores and 67 crores shares of Face Value of Rs 2 in existence it would mean a Book Value of @ Rs 120 !….But if all is fictitious,there is NO BOOK VALUE !….SHARE PRICE SHOULD THEN BE VEERING TOWARDS ZERO 

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Satyam Independent Director should attend one of his own courses!

Last Night I was amused and then rather angry to hear Prof M Rammohan Rao,an Independent and Non Executive Director on the Board of Satyam Computer Services Ltd

He was defending the decision taken by them for Satyam to acquire Promoter related Maytas Companies

Menaka of CNBC TV asked him which was the lesser of the Devils

  • Entering into a secondary market deal with promoter related parties where the Satyam Monies would go to these related parties directly or
  • Infusing Capital and  Investing directly into the Maytas Companies by accquiring New Shares 

Would you believe it !…Prof Rao professed that it would not have looked good for Satyam to directly invest in the Maytas Companies !…He is of the opinion that Monies directly to Promoters Sons is a better idea ! 

This Director is the Dean of ISB and as a Satyam Director earned a Commission of Rs 12 lakhs last year in addition to sitting fees of Rs 1.2 lakhs plus held 10000 Stock Options for Equity Linked Restricted Stock Units at a grant price of Rs 2 

Methinks this Dean needs to attend one of his Own Classes on Corporate Ethics and Governance at the ISB

Another Reflection…..Another Independendent and Non Ececutive Director,Prof Krishna G Palepu in addition to Commission of Rs 12 lakhs and Sitting Fees of Rs 40000 ,also received Professional Fees of Rs 79.51 lakhs from Satyam for FY 2007/8

Don’t you think such Monetised relationships will cloud the Independence of these Directors at Board Meetings ?

I mean, even if the Directors felt this Diversification was beneficial to Satyam,they surely must have realised that nearly all of Satyam’s Cash of @ US $ 1.5 billion would move out quickly to the Hands of the Promoters in this US $ 1.6 Billion Acquisition of their stake in Maytas Companies !…….Why would the Directors  have agreed to deplete Satyam of all of it’s cash !?…Defies Common Sense,Conventional Wisdom,Rationality and Logic

I have read the Conference Call transcripts to stakeholders to justify this decision as well as emails send by Satyam Founder,Ramalinga Raju to Employees and Associates after reversing the decision…..Was Delighted that SBI Mutual Fund and Templeton had the guts and courage to vehemently and voiceferously oppose Satyam’s Chairman and CFO in the Conference Call  

I too am a Satyam Minority Shareholder and I strongly advise Ramalinga Raju to keep quiet to avoid putting put his foot in his mouth and further dent “the established brand of Satyam” as he boasts of.

To appease shareholders Ramalinga Raju has now announced a Board meeting for December 29,2008 to consider Buyback of Shares

I would also advise  him to consider returning cash to shareholders through a High Special Dividend of atleast 1000 %…That would mean a dividend of Rs 20/share and an outflow of Rs 1340 crores on 67 crores shares of FV Rs 2…Even after this Satyam would yet have over US $ One Billion in Cash  

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