The Hindu Business Line : Price Waterhouse has to answer

The morning after, as it sinks in slowly that what broke on Wednesday is the worst corporate scandal in India’s history, angry questions are being raised on the role of Satyam’s auditors, Price Waterhouse, in the scandal. And the firm is not helping its cause by trying to stall, hedge and deflect attention, much like Pakistan vis-À-vis the 26/11 attacks.

The so-called Big Four audit firm (KPMG, Ernst & Young and Deloitte Touche & Tohmatsu being the other three) put out a standard statement on Wednesday, hiding behind “client confidentiality” and stating that it was “examining the contents of the statement”.

Realising probably, that this was not enough, it came up with a second statement on Thursday evening claiming that “the audits were conducted in accordance with applicable auditing standards and were supported by appropriate audit evidence”.

Touche! (no pun intended). The powerful audit firm actually deigned to issue statements! But, wait. What “client confidentiality” is Price Waterhouse talking about when the “client” has already spilt the beans and the dirty linen is being washed all over the media if not at street corners?

If this is not laughable, what is certainly so is the part about “examining the contents of the statement”. Didn’t Price Waterhouse, as the auditor, know what its client was up to? If it did not, as its statement seems to suggest, then the audit firm is liable to be hauled up for professional negligence.

How could it not know?

But if it did know about the happenings but for some reason chose to look the other way, then Price Waterhouse is a fit case to be proceeded against, not just for professional misconduct but for criminal acquiescence as well. Mr Raju’s fraudulent manipulations are standard text-book types taught to every audit professional as he sets foot into the profession. How did the auditors miss such basic misdemeanours?How did Mr Raju manage to pass off fictitious invoices raised on customers as genuine? And how did he sneak in a fictional interest credit as income? Mr Raju also claims that he “arranged” Rs 1,230 crore for Satyam in the last two years that is not reflected in its books. How did he do this without Price Waterhouse’s representatives’ knowledge?

And, again, asking for a statement of confirmation of balance from banks (for cash balances) and debtors (for receivables) is a basic procedure in an audit. How did Price Waterhouse’s celebrated professionals fail in this matter? If they had indeed conducted the audits “in accordance with applicable auditing standards and supported by appropriate audit evidence” then Mr Raju could not have done what he did.

It is clear as crystal that Price Waterhouse has nowhere to hide and there are only two possibilities so far as its role in the Satyam scandal goes — it was either extremely inept in its role as auditor or it was a willing accomplice, choosing to look the other way when Mr Raju was fiddling with Satyam’s finances. Both possibilities are equally damning.

Given this, what one expected from the firm was an explanation without loss of time, owning up to the lapse and submitting itself to investigation. That would have been conduct befitting a multinational firm of stature, boasting of such clients as Toyota Motor, Volkswagen, IBM, American Express, Nokia and GlaxoSmithKline. Instead, what we have is a Pakistan-like attempt to hedge and deflect attention that will take the audit firm nowhere. Employees of the firm say that they have been served gag-orders and dare not speak to any outsider. This is unbecoming conduct, to say the least.

The acid test

The Institute of Chartered Accountants of India (ICAI), governing body of the accounting and auditing profession, has made the right noises till now, though the proof will be in its actions. The regulatory body is already attracting blame for not prosecuting Price Waterhouse for its role in the Global Trust Bank scandal five years ago. Satyam is now a test case for it.

Society’s confidence in auditors, already dented, is now at the lowest one has seen in several years. The ICAIs actions will, therefore, be closely watched. One dearly hopes that the regulatory body unwaveringly investigates Price Waterhouse’s conduct and metes out exemplary punishment, including disqualification of the auditors from membership of the ICAI and blacklisting the firm, if it is found guilty.

The Satyam scandal is to Corporate India what 26/11 was to the nation. Just as the Government is pursuing the perpetrators and accomplices of that heinous crime single-mindedly, so should the ICAI pursue its members who were a party, willingly or otherwise, to the Satyam scandal.

( blfeedback@thehindu.co.in)

Related Stories:
Price Waterhouse hides behind client confidentiality
Simple manipulation of revenues & earnings
Auditors role: More to it than meets the eye

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
‘…answer is blowin’ in the wind’

Crime and punishment

Price Waterhouse has to answer

Corporate scandals: Ensuring fast and deterrent action

Satyam’s flawed ownership model

Tighter regulation

Sweet anticipation

Satyam fiasco