The unprecedented and shocking revelation that for over 7 years, a major Company in India listed in several stock exchanges including NY Stock exchange had been defrauding the investors with an inflated reporting of profits to the cumulative extent of around US $ 2 billion (or more) is a matter of concern for all Indians.
Dubbed as the “Indian Enron”, the incident in which Mr Ramalinga Raju, the Chairman has given a written confession about the overstatement of profits consistently has opened up several questions on the ” Role of Regulators in Corporate Governance”.
There is one set of observers and journalists who are harping on “When Raju will be arrested?”, “Whether his personal assets would be seized?” etc. While all this may be relevant, what is more important for the public now is
a) How to salvage Satyam as a company from the effects of this scam?
b) How to prevent the scam have adverse impact on other IT companies and the Indian stock markets?
c) How to prevent recurrence of this type of incident in future?
Late in the night today (9th Jan), Mr Ramalinga Raju is reported to have surrendered to the Police in Hyderabad. In another surprising move, the Government has superseded the Board of the Company and has announced that 10 persons will be nominated by the Government to the Board.
However, the stake holders namely the Shareholders and employees who have been the real sufferers in the incident are not sure if these moves are likely to benefit them.
Shareholders have lost almost their entire investments as the shares dipped to around Rs 20 in the stockmarkets. Whatever be the measures taken to salvage the company, it is unlikely that the share prices recover to a decent level in the foreseeable future.
Employees are also unsure what the takeover of the Board means. In the last two days, there were some internal discussions by the employees to make the company viable by various means which included a voluntary cuts in the salary etc. The employees had also taken steps to get the support of their major clients and there was a faint possibility of employees taking over the management of the company and trying to turn it around.
However, with the Board now having been superseded, the initiative of the employees has also taken the back seat.
From the business perspective, if the current business of Satyam can be preserved, it may be possible to bring the Company back to profit making levels. However, there is the lurking liability of the UPaid case amount to around Rs 4000 crores which may manifest in the next year. Hence any strategy to turn around the sick company to health has to cover a possible loss of around RS 12000 crores. Also the top notch employees are bound to shift to other companies may be along with their customers.
Under the circumstances, it is almost impossible to salvage Satyam as Satyam. All that the new Board may be able to do is to delay the inevitable. Investors therefore will lose their entire investment in the Company.
With the fall of the share price to near zero, the impact on the Stock Market is also unavoidable and the investor sentiments are likely to be so shattered that the impact will be felt by other companies particularly in the IT sector.
In fact, the impact of Satyam debacle on the Indian stock markets could be more damaging than the so called global recession.
A large number of employees particularly at the junior level will find it difficult to find alternate employment and this will affect a number of freshers whose jobs will be taken over by the exiting lower level employees of Satyam. The impact on the job market will therefore be also devastating.
On the other hand, those brother companies who absorb key Satyam employees and use them as a leverage to take over the key client projects are likely to benefit.Â
As regards the future steps to be taken to prevent recurrence of such events, it is necessary for the Government to initiate actions against two of the regulatory agencies who are directly responsible for the fiasco by their dereliction of duties. The first is SEBI which failed to see through the falsified financial statements. We may admit that SEBI may not have the necessary expertise to analyse the financial data submitted to them but still the need to develop such an expertise at least for the future has become imperative.
However the highest responsibility for this fraud must be ascribed to the auditors of the Company whose primary task is to ensure a fair presentation of the accounts. The auditors were hand in glove with the Company in the commission of the fraud and its’ continuance over 7 years. Penal action is therefore necessary against the auditors namely PWC have come out as accomplices in this fraud and its directors as well as individual auditors.
A large gathering of Chartered Accountants who assembled at Hotel Ashok today in Bangalore for a seminar expressed their grave concern on the loss of credibility of the profession and urged the ICAI to initiate strong action against the erring auditors both the firm PWC and the individual auditors involved.
The participants  suggested that action should be taken immediately to suspend the auditors and the institute should not delay the process for any technical reasons. Many of them felt that there was a need to change the regulations to ensure that auditors in big companies should be given a three year term and there after other firms should take over by rotation so that the promoters cannot exercise undue influence ton the auditors.
It was also suggested that the institute should introduce a whistle blowing policy where complaints should be lodged with the institute if something fishy is smelt in any company. Participants raised pertinent questions with the CFOs of Infosys and Wipro who were present in the meeting if they had not smelt that the profits of Satyam had been overstated since they had a better understanding of the market realities in the IT field.Â
The meeting had actually been organized to discuss the new International Financial Reporting Standards and the participants felt sceptical that any such standards may be of much help to improve the quality of audits unless there is exemplary punishments to auditors for Satyam like incidents.
The Satyam scam therefore is likey to leave its impact on the functioning of the chartered accountants in India and hopefully suitable steps will be initiated by ICAI to reduce the possibility of such instances in future if not eliminate them. At the same time, it is imperative that the erring members of the institute should be barred for life since lesser punishment would not be a fair punishment for the damage they have caused to the Indian economy, the thousands of employees and shareholders.
Loading ...
21 users commented in " Satyam Fraud .. Chartered Accountants Call for Action against PWC "
Follow-up comment rss or Leave a TrackbackI am shocked to hear such unprofessional comments coming from such a large gthering of CAs… Cash faud of such a proportion seems next to impossible to me… does any one out there understands what has happened and how can this happen…
Before making any such demands against a professional organisation, one needs to understand how the act has taken place and only then blames should be fixed…
Why only Satyam or PWC, to prevent repeatative fraud of this nature even the role & functioning of ICAI , the Apex body of Chartered Accountants also has to be investigated
ICAI , which is slowly becoming the hot bed of corruption bust be brought to books
How could the highest responsibility for this fraud be ascribed to the auditors of the Company? Did they prepare the accounts? Does any body has any proof that the auditors did not performed their duties as required by Indian ausiting standards? Do all these professionals know the inherent shortcomings of audit which is no way equivalent of investigation?
How could the highest responsibility for this fraud be ascribed to the auditors of the Company? Did they prepare the accounts? Does any body has any proof that the auditors did not performed their duties as required by Indian auditing standards? Do all these professionals know the inherent shortcomings of audit which is no way equivalent to investigation?
Well these are in my mind
1) What is a standard auditing practices. If it were standard, Then the client and auditor are responsible in dealing with such item
2) To me, independently Verifying the bank balances / vendors / debtors balances are important and is part of the practice that anyone should attempt.
3) With reference to cash, we are not sure if it just happened for sep or even earlier?. Mr.Raju confession says something in September 2008. Was it statutorily audited, If yes, then the PWC is responsible.
4) Vendors/ debtors confirmation balances: Well this is the biggest and longest action or commission of the company and its auditors. If they obtained the independent confirmation, the cumulative figures is just not possible to the tune of thousands of crore is just not possible.
According to the confession of the Chairman Mr Raju, the cash position was overstated in the books for a period of over 7 years. This means that the auditors had year after year failed to notice the difference or have not checked the bank statements.
I cannot understand how an audit can be conducted without verifying the Bank statements. Even if the statements had been forged by the Company along with the confirmation of balance, I suppose a diligent auditor should have found it out.
Why I think the highest responsibility should be pinned on the auditors is that they perform a public duty. The shareholders trust the auditors to take care of their interests since they have no access directly to the books of account. Even the regulatory agencies such as SEBI depend on these audited statements. Bankers rely on these statements and lend money. Now because of the auditor’s mistakes, may be some Bank may go bankrupt and their shareholders may get affected. Hence I feel that auditors in this case deserve to be jailed for as long or more than Mr Raju.
PwC has said that they have audited the statement of accounts as per standard accounting practices. THIS IS A NUCLEAR BOMB DROPPED BY THE FIRM. It only implies that there is a poosibility of many many companies involved in such scams >>>> PM / FM please wake up and save innocent investors …..
Does any one know the EXACT modus operandi ?
- It is important to know how 7000 +crore fudging was possible ?
- How long did it actually take ?
- did the Rajus loose on the recent realty crash as well ? or did they loose on forex etc ?
and
- How many others are involved ?
regards
vinayak
I agree with Gaurav. I can understand the media accusing and judging a group of professionals. Most of the reporters have hardly any understanding of the real situation and only know that they need to sensationalise every issue that comes up and fill the time slots. However it is surprising that a group of professionals are actually being so biased against another professional organisation.
Also, its been highly surprising to note that all the ppl are relying on whatever has been communicated in the letter by Mr. Raju without even thinking that the letter was written by the person who has actually committed the offence or atleast spear headed it…. Is it right to just rely on this letter and tag other people esp when the talk is abt a set of professionals.
In my opinion we should all as a group maintain restraint and wait till independent organisations finish their probe and come back with adequate evidence to show whether the ppl involved are actually guilty or not.
Any kind of mud slinging at the auditors is not jut affecting PWC but also the whole community of auditors and also raises qs abt the credibility of the profession. So i request all to wait before passing a judgement on atleast the auditors.
This can and probably will lead to a complete breakdown of trust in the system.
It is totally inconceivable that the auditors are innocent in this affair.
These are the possibilities:
1> PwC is monumentally incompetent in that they missed this not for one year but for seven. It raises very disturbing questions as to the skills of the professional staff, and it would be quite sad if this were the so-called cream of the accounting crop. More intriguing, what does it say about the gullibility of the investing public?
2> PwC colluded with the Rajus and Satyam executives. This is serious and they should serving time in a regular jail somewhere soon.
3> The system itself is totally corrupt with I’ll scratch your back if you scratch mine carried to dizzying heights. After all if the press replorts are to be beleived they tried to bribe World Bank officials. I’m quite hip to the fact that this sort of thing happens all over, e.g., witness the Olympic bribery scandals of a few years ago.
It would be a miracle if there was not significant fallout. Its time to short the Indian IT industry. Code coolies with fake midWestern accents can only pull the rick shaw so far.
No Auditor can catch a well laid fraud. So is this a well laid fraud? To me NO. Fraud happened due to greed of management & incompetence & greed of Auditor. Same big 5 were involved in accounting manupulation by Indian nationalised banks in early 1990′s. Just see failour of banking system in US. These big 4 are the auditors.
Answer to this problem is:
Indians are obcessed with westeners. Fact is, their education system is not credible & they sre more of technecians than well educated professionals.
There is need to review ICAI. ICAI does not hv any credible system of monitoring training of the articles & working of its members. There is no professional development program run on regular basis. Till 1991 all the examinars of ICAI had never tought at any level. Inly after 8 Indian nationalised banks became bankrupt they were quized so iCAI started appointing university lecturers. So their traning system was also not credible. Infact it was bankrupt. Even today ICAI is nothing more than a banya community run by few industrialists. Indian govt need to form a proper body to monitor training of auditors.
PWC in India should be dismantled, thats the least!
What happened to the rules and so called regulators, crores of PUBLIC money in drains. why are ICAI regulations not met, we need to have strict regulations on the regulators. The credibility of the system is questioned. Right from the market crash which was a speculated BSE index and now with a chairman himself drafting a mail which he thinks can help him and seeking empathy for being true at the fag end when things are beyond limits. The punishment given for the fraud should be a memorable experience to all corporates out there.
PWC: they claim the information provided was wrong. Being reputed auditors it is there job to ensure that the data is correct and from the right source. what difference does it make between PWC and a 2 years experienced B Com graduate who does the same job where is the differentiation that PWC claims
Hello Folks,
Studied all of the posts , but really becoming curious about ourselves! Guess why!
I’m from an SMB (in IT) of India and have got more or less all the news about the scam and the global recession as well, but we are really very lucky, because on an average, everyday we are getting some new clients who were previously handling with the so called ‘IT Giant Companies’ and now do you know their reaction, “just shot out the giants and welcome the SMB”.
Can anyone be able to answer me about this situation? Is it our Success or any other’s failure?
as per my knowledge i think satyams whole fraud is possible due to auditors because they violate accounting policies and accounting standards while checking & preparing audit report.Also companies CEO,DIRECTORS,are responsible for this fraud.
PWC repeatedly declared that they have done audit as per accepted standards
Now, CID claiming that two PWC auditors were interrogated and they admitted that all these frauds were done with their active participation.
So, we now all know what is PWC standards.. kick this PWC and all corrupt auiditors out from the civilised world
Dear freinds,
It is really amusing to see some of our CA colleagues trying to defend PWC .we are no better than Pakistan in our effort to be in a state of denial.
When huge balances of debtors , creditors or cash are reported , is it not the duty of the auditor to independently verify the same ,atleast on a sample basis ?
The fraudulent cash balances could have been easily found out . This is the least an auditor charging crores of rupees as fees could have done .
None of us seems to remember our fiduciary duty towards the shareholders .
Dear all,
i completely buy the argument put forth by UMA,
it is completely unacceptable that the auditors could not find out the correct cash balances, it is the basic audit procedure to verify cash which even the smallest of the organization would discharge accurately.
Further, the saga has shaken the confidence of the investors in the organizations and independent auditors which has brought a very bad repute to the auditing fraternity.
I have a simple question.
As per ICAI’s regualtions, foreign audit firms like E&Y, PWC , KPMG, and D&T are not allowed to practice auditing work in India i.e.none of them can be appointed as a statutory auditors of a company by shareholders in their annual general meeting. In order to act as a statutory auditor, such firms should
be registered with ICAI and none of them are registered with the ICAI. These firms are just affiliates in India and conduct consultancy services. They perform audit work on behalf of local audit firms who have licenses from ICAI. This means that these foreign firms outsource their auditing services. It also means that the foreign audit firms do not have power in India to attest the financial statements.
If the above is the case, what are the legal liabiliies of PWC in case of Satyam’s frauds? What action the government or ICAI can take against PWC which does not have the attestion power for financial statements? The foreign audit firms recruit Indian CAs who are the registered members with ICAI. If any of its member has conducted audit for Satyam, then the action may be taken against those CAs who are the members of ICAI and have conducted audit of Satyam. It means that the punishment may be only to suspend their license for a period of 5 years. So in Satyam case, the legal onus is with the individual CAs who are the employees of PWC India and it will not be easy to take any legal action againt PWC, if upon investigation it is found that auditors have shown professional negligence while conducting the audit or were a part of the fraud. In such a case PWC will lose its reputation and I am afraid that this case will affect its global operations.
Any one can clarify the above position for the benefits of several readers.
I have few other points:
1. Detection of errors and fraud occur during the course of External Auditing( to detect frauds is the responsibility of the external auditor or not, has remain a debatable point.
2. Investigation of fraud is done by Police and Forensic Accountant and Auditor ( Forensic Accountant and Auditor can be hired by court or even by the Police and other agencies).
3. Prevention of fraud lies with the management of the company.
As Satyam fraud runs into billions of dollars, the investigation should be done by competent and qualified Forensic Accountants and not by the auditors of another audit firms. The evidence to be collected will have implications in a court of law.
I think that the role of a forensic accountant is more here.
2. This case also exposes the ability to critically use accounting and auditing skills of Indian CAs who conducted the audit. It also exposes their lack of continuing professional education. I am afraid that all the auditors really know the full contents of thirty three ISA ( ISA 200 ………. ISA 800). Why am I saying so because recently, I have conducted a study on the extent to which auditors fully comply with ISA. During the course of my survey, I was a bit intrigued to see that many of the professional auditors were not fully exposed to all these auditing standards and their proper interprepation.
3. In any auditing course, students are first taught how to audit cash and bank accounts? Satyam case, in the first instance, is a fraud of $one billion cash (details will be known only after investigation is completed the modus operandi used to commit fraud). Auditors should have carefully audited these two accounts, presuming that they may not be a part of the fraud.
i dont find this case any different from the enron case. so, whoever who is responsible for this fraud should pay the price.
Leave A Reply