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 read more

AUDITORS PRICE WATERHOUSE : Will Surely Pay the PRICE as there is not enough WATER to douse the SATYAM FLAMES that are engulfing their HOUSE !

Within just one day of Satyam’s Promoter Chairman,Ramalinga Raju confessing to cooking up the Books, in his letter to the Board,the Auditing House and one of the ‘Big Four’,PRICE WATERHOUSE is already being relegated to history for their role in this unfolding and sordid Satyam Saga…remember how the Auditing Giant,Arther Anderson wound up when Enron failed !?

Price Waterhouse audits over 100 listed Indian companies like the Auto Giants Maruti and even the huge HCL Group in the Software Sector…so it’s not that they don’t have any experience of auditing software majors…..So their obvious lapses when auditing Satyam was a huge shocker

I remember that in 2007, when I was at a High Profile Corporate Governance Seminar in Mumbai where the dignitaries were Heads of Exchanges and Government Ministries and Leading Corporate and Auditing Houses from all over India,there was a very ‘show offy’ lady from Price Waterhouse whose presentation revolved around their specially developed software of a Corporate Governance System that clould be implemented by Corporates….When the Chief Secretary of the Orissa Government,one Mr Patnaik,asked her how much would this Software and Implementation Cost and could it be applied to PSU and Government Set Ups,this lady had the bloody cheek and arrogance to state ” You probably would not be able to afford it !…It would cost over Rs One Crore “….There was a shocked and studied silence for a few moments on her brazenness…When I was asked to address the audience I commented on this sort of arrogant and snobbish mindset by professionals..She was just one of a Tribe, that sadly has many members,who have inflated egos and inflated opinions of themselves and their firm and status….I daresay it’s a contagious American Banking and Corporate Trait…but look where it’s landed America and it’s once major Powerhouse Icons !

Auditors are appointed by Shareholders at the AGM to ensure Independent Review and Audit of the Financial Books and Assets…but for all purposes their Independence is severely compromised as they have to interact with Management and Promoters to solicit increase in Fees and potential other Business like Certification,Tax and Conultancy work in Mergers and Acquisition and Valuation Situations….even though the ICAI and the Companies Act has directives that should be followed and practises so as to not create any Conflict of Interest in Auditors,these firms find a way out by routing business other than audit to other front or related and friendly firms…as this is widely practised by most firms in this competitive era,the ICAI is not a very strict enforcer of directives and guidelines….this strengthens and makes for a compelling case for the government to intervene and set up a seperate legal body to conduct Audits or create a Regulatory Body for Auditors.In fact the New Amendments to the Companies Act will involve stricter and more stringent compliance by Auditors and Directors read more

NOW TWO MORE SERIOUS QUESTIONS EMERGE IN THIS SORDID SATYAM SAGA UNFOLDING!

Now Two More Serious questions need to be answered in this continuing Satyam Saga !

QUESTION NO 1

DID RAMALINGA RAJU INTIMATE LENDERS TO SELL HIS PLEDGED SHARES BEFORE RELEASING HIS CONFESSION LETTER TO REALISE A BETTER PRICE TO CLEAR MORE OF THE LOAN ? 

This is very much posssible as the Promoters Holdings was 8.61 % on December 16,2008 when Satyam announced the controversial Maytas Takeover Proposal but has since dropped to below 4%…It so transpires that promoters had pledged their shares to raise funds…Ramalinga Raju claims in his confession that the understated  Liability of Rs 1230 crs in Satyam is on account of his raising funds for the Company against his own Shares !

Lenders have sold these pledged shares post December 16,2008….Question arises as to whether the disgraced Ramalinga Raju pre-warned the Lenders to selloff before he released his confession letter yesterday morning…This would have got the Lenders a better price as Satyam share was murdered yesterday from Rs 175 to close at Rs 40 on release of the Confession Letter

Another Thought !…If Raju claims he arranged Rs 1230 crs for Satyam against his shares then what was the accounting entry passed in the Books of Satyam for this ?…as Monies should have come into Satyam,the Debit obviously would have been “Bank” but where was the Credit given for the Double Entry ?…If it was ,as it should have been,given to the Lenders to reflect their Lender Status in the Books then where is the understatement ?…..Understatement arises only when the Credit was not given to the Lenders but to some other Accounting Head…It cannot have been a Single Entry…Books would not have tallied !….What the hell were the auditors Price Waterhouse doing ? How did these entries escape them in both Substance and Form ! ?

I want to know where the Credit was given in the Satyam Accounts for such funds as Raju claims were arranged by him against his shares !   

OUESTION NO 2

NOW WE KNOW WHY THE MAYTAS PROPOSAL WAS STRUCTURED THE WAY IT WAS ! QUESTION IS WHICH ‘BIG FOUR FIRM ‘ CONNIVED WITH SATYAM TO BRING UP THE VALUE OF THE MAYTAS DEAL TO US $ 1.6 BILLION ! TO MATCH THE SATYAM ASSET HOLE ?

IF INDEPENDENT DIRECTORS WERE IN THE DARK,THEN WHEN THIS MAYTAS DEAL WAS PROPOSED AT THE BOARD,THEY SHOULD AND WOULD HAVE IMMEDIATELY QUESTIONED WHY ALL SATYAM CASH WAS BEING USED AND WHY THE DEAL WAS BEING ROUTED THROUGH SONS OF SATYAM PROMOTER RAMALINGA RAJU AND NOT DIRECTLY GIVEN TO MAYTAS !…AT THIS STAGE THESE GREAT ACADEMICS,PROF KRISHNA PALEPU OF HARVARD,PROF RAMMOHAN RAO,(DEAN OF ISB) AND DR MANGALAM SRINIVASAN AND INTEL ICON, MR VINOD DHAM WOULD HAVE REALISED THE DUBIOUS REASONS FOR SUCH A STRUCTURING AND THE CRIMINALITY THAT WOULD STAND EXPOSED…THEY SHOULD HAVE NOTED THEIR DISSENT IN THE MEETING ! read more

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  read more