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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 


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

The Report was signed on April 21,2008 by Srinivas Talluri,the Hyderabad Partner of the Auditors,Price Waterhouse   

Page 63

Annexure to the Auditors’ Report

Point 6 : In our opinion,the company has an internal audit system commensurate with it’s size and nature of its business 

Page 64

Annexure to the Auditors’ Report

Point 17 : During our course of the examination of the Books and records of the company,carried out in accordance with the generally accepted auditing practices in India,and according to the information and explanations given to us,we have neither come across any instance of fraud on or by the company,noticed or reported during the year,nor have be been informed of such case by the management

Page 68

Balance Sheet

As at March 31,2008 the Total Assets are Rs 7381.31 crs of which Net Current Assets are a whopping 80% at Rs 5916.74 crs…of which yet again Cash and Bank Balances are Rs 4461.68 crs or 60% of Total Assets

Page 73

Schedule 8 Cash and Bank Balances

Of the total Cash and Bank Balances of Rs 4461.68 crs,Current Account Balances with Scheduled Banks is Rs 956.29 crs while Deposits with them are significant at Rs 3317.70 crs.Balances with Non Scheduled Banks in Current Accounts are just Rs 179.78 crs

Pages 80 and 81

Notes to Accounts

Note 15 g lists out 43 banks around the world which are categorised as Non scheduled Banks and which hold Rs 179.78 crs in Current Accounts



In light of Ramalinga Raju’s confession yesterday that he has been cooking the Satyam books for years and that there is a Cash Hole of Rs 5040 crs as of September 30,2008,the Critical Question is that as of March 31,2008,were there at all any Genuine Deposits to the tune of Rs 3317.80 crs with Scheduled Banks as stated in the Accounts forming part of Annual Report and which has been audited by Price Waterhouse….If there were ,then this would qualify as ‘Appropriate evidence’ to salvage the auditors to some extent atleast even if such deposits had been managed to be got in by Ramalinga Raju to whitewash his fraud at year end and to throw the wool over the auditor’s eyes…or were Bank Deposit Documents forged ?…Time and Investigation will reveal what really happened

If you peruse the above extracts you will find it really hard,like I do,to believe that the statutory auditors followed generally accepted auditing standards and practises and accounting principles…If they had they would have discovered the Asset Hole….It is equally hard to believe that in performing their roles,neither the Internal Auditors,nor the Statutory Auditors ,nor the Audit Committee of the four Independent and Non Executive Directors had any clue as to what Ramalinga Raju was upto !…unless ofcourse they never perfomed their fiduciary roles !..or never knew how to !…for all you know the presence of the CFO and  Head of Internal Audit as Invitees to the Meetings of the Audit Committee may have actually compromised the Independent functioning of the Committee,members of which should have been leading but were instead being led !

Sooner or Later the Statutory auditors, Price Waterhouse will have to disclose the nature of their ‘Appropriate Evidence’ to support their Audit of Satyam and how they cannot be blamed for any recklessness in the Audit for not exposing the Asset Hole of Rs 7000 crs as confessed by Ramalinga Raju yesterday ….Today the Interim CEO,Ram Mynampati, was cleary squirming when facing the Media…but he did confirm that the Cash situation is not very encouraging…so Satyam just does not have any significant monies that it’s accounts show it must have !

As far as suspecting that Satyam does not actually have 50000 + Employees on it’s rolls as it claims…well,actually the Personnel Cost Figure of Rs 5045.54 crs in FY 2007-8 for 55360 employees gives a credible annual average cost per employee of Rs 9.11 lakhs…The question to ask is if any of  these 55360 employees do not really exist and are just ‘Benami’…A Cross Check with Gratuity and Pension Records with Insurance Companies and Government Records will confirm bonafides  

The unfolding of the Satyam Saga continues…Media has been reporting right through the Day that there is no trace of either the Promoter Chairman, Ramalinga Raju or the CFO,V Srinivas,both of whom have resigned….A lawyer representing Ramalinga Raju claims his client is not absconding and is very much in Hyderabad.


6 thoughts on “Satyam Auditors, Price Waterhouse, issues a statement late today..Let’s put it in perspective”

  1. PwC cannot shrug off responsibility for its auditors’ failure. High time PwC is blacklisted and barred from doing business in India at least. The people are watching; this is an election year.

  2. In the light of the Satyam scandal, one wonders what’s the scene with other accounting firms. As for PwC, all its other audits and signing partners should come under the scanner. The top(partners) has to be cleaned( scrutinised) up first.

  3. (Tongue in Cheek)
    There were reports that a couple of top guns of Satyam have flown away. Really? Has someone tried looking under the cots of partners of PwC?

  4. ICAI seems to be going soft on PwC. Who are they shielding and why?
    The investors and shareholders should come together and see that all the guilty are brought to justice.

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