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What Happens to Price Waterhouse, The Auditor For Satyam?

07 January, 2009

Price Waterhouse has been the statutory auditor for Satyam Computer Sevices for last six years now. The apex chartered accountants’ body ICAI will seek an immediate explanation from Satyam Computer’s auditors, Price Waterhouse, on the financial fraud unearthed by the software company’s chairman B Ramalinga Raju.

Two leading corporate lawyers give their views on the auditor’s role and the legal action that could be taken. 

Shantanu Surpure: The auditors may face liability.  They are appointed by the shareholders in an annual general meeting Section 227 of the Act enumerates the duties of the auditors of the company who is required to ensure that the balance sheet and profit and loss account are in agreement with the books of accounts and whether they are in compliance with specified accounting standards, etc.  

Section 233 establishes a penalty on the company for non compliance that may extend to INR 10,000.  Possible action may be taken against Price Waterhouse under the Institute of Chartered Accountants of India internal code of conduct, in addition to possible action against them under the Act.

Under Sections 62 and 63 of the Act, any person issuing a prospectus that contains a false statement may be punished with up to 2 years imprisonment and fine up to INR 50,000.   This includes directors, promoters and experts such auditors and investment bankers.

Satyam also had an ADS listing in the US and filed a prospectus with the US SEC.  Under Rule 10b-5 issued under Section 10 of the Securities Act of 1933, it is unlawful for any person to make any untrue statement of a material fact or to omit to state a material fact in connection with the sale of a security.   Under Section 11 of the Securities Act, the persons who signed the registration statement (directors and officers) are liable in addition to the underwriters, auditors and other experts.

Anonymous: Under S. 227 read with S. 233 of the Companies Act, the auditors are required to accurately, fairly and diligently review and audit the accounts of the company before issuing the signed auditors’ report. Failure to do so would result in a penalty under S.233 of Rs. 10,000.

Further, shareholder lawsuits could be brought against the audit firm for failure to exercise due care. In addition, disciplinary proceedings/enquiries could be initiated by the Institute of Chartered Accountants of India against the audit firm, which would be a very serious implication for the audit firm, as it could have the immediate effect of disqualifying their eligibility to act as statutory auditors for several banks and other institutions. Such an event could also result in suspension or debarment of the audit firm if the ICAI concludes that there were serious lapses on the audit firm’s part.

Shantanu Surpure is the Managing Attorney, Sand Hill Counsel, a Mumbai and Silicon Valley-based law firm.

The other lawyer has requested to be anonymous.  


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30 Comments
Sriram . 5 years ago

Only INR 10,000. It is ridiculous considering the Rs 7000 crore scam

KOMAL . 5 years ago

A reading of the above lines clearly shows how strong our laws could be to tackle this issue. The Companies Act providing for such a minimal amount of penanlty only strenghens and supports the wrong doings of the directors..

It time that other Companies both listed and unlisted wake up and get their records right both in letter and spirit!!

The world is now waiting and keenly following what the prestigious ICAI will do and how the Big 4s certify the CLEAN statements..

So is mere DISCLOSURE enough???

Chirag Shah . 5 years ago

The scandle is for 8,000 Cr ruppes and the penalty for it is only 10,000 and 50,000 INR only… The package declare by our PM to rescue is 5 times of scandle… It means only five companies done scandle and India will be at “zero” agian in crisis… This is rediculas…

anonymous . 5 years ago

Can anybody give justification of the role of Auditors.

DV . 5 years ago

Grill their @#$

Kisan . 5 years ago

Since the penalties under the companies act are only minimal for a big auditor like PWC, its only the ICAI that can do something significant. If this is the way in which the BIG 4 perform their audits, then they should not boast of being the BIG 4.

Pramod . 5 years ago

Now there is a time to get independent watch on every company in which public interest is affected. and it can be possible only through appointment of Auditors and Directors through Panel, as PSU bank Auditors are appointed presently.

Lalit . 5 years ago

Satyam would a case of corporate governance and ethics gone sour. The Directors and Auditors of the firm should face only RI and Extended Jail terms in light of immense harm that they have brought unto not only the shareholders but also the image of the country and India as a whole. Hope swift justice would be effected.

anonymous . 5 years ago

As per the resignation letter of Ramalinga Raju, he has admitted that the deal wth maytas was intended to fill satyam with some real assets and payment to maytas may be deferred. perhaps the shareholders of Maytas can take action against the Maytas management for even thinking about such a deal.

Karthik Balakrishnan . 5 years ago

I have worked in Big 4 as a trainee.Then I realised its a Farce… All they do in prepare jazzy documents. waste time of everybody. and pretend they know everything. Big 4 must be audited by regulatory bodies. the revelations I guarantee will be monumental.

VARUN . 5 years ago

I think it was PWC’s responsibilty to to make sure that Satyam’s book gives true and fair view but it was not done.So PWC should also be held responsible for this because it doesnot make sense that there was such a major fraud in books of accounts and that from last 3 yrs and Statuary Auditor was unaware of it and if that is so i think PWC’s auditor need to learn to HOW TO AUDIT.

Dipankar Talukdar . 5 years ago

PWC should be forced to pay the money, all the investors have lost with Satyam

John . 5 years ago

These penalties are a joke – PW will pay them from petty cash. One can only hope they will go out of business, either due to lack of customers, or preferably, PwC (US) shuts them down to protect the global brand.

How could anyone trust buying stock in a company that is audited by an organisation didn’t notice or deliberately hid $1B.

Given the world bank affair(s) relating to Satyam, it seems there are systemic rather than isolated issues.

PJ . 5 years ago

I have myself worked with a rival Big 4 and am an entrepreneur now.

An auditors job is thankless. You ask tough questions and documents to the management, they ridicule you and accuse you of being a bloodhound. You dont do enough, and shareholders are after you.

Just like a policeman. Get tough with the goons and human rights activists are after them. They are lenient with the goons, and general public is after them.

You hate them or like them, they are needed by the system.

Nevertheless, auditors job is important in a free market for capital flows. Satyam is a good example for every audit executive to be tough with management and dont buckle under evasionary tactics employed by managements. Pursue an evidence till you get it. Your duty is to the shareholders and this is crystal clear.

A fraud of this magnitude!!! and how can bank balances be fictitious? Impossible without connivance, imho

It is comparatively difficult to catch revenue related frauds. Fictitious assets could be concealed in reserves. But a fictitious bank balance cannot pass any scrutiny. PwC has some tough questions to answer.

My guess is between the year end audit of March 08 and last quarterly reviews (which are limited audits), some big time fudging has happened with respect to bank balances to make a last ditch effort to conceal the 7-year fraud.

All auditors, especially Big 4 will be under scrutiny now.

Everyone would want PwC to go Andersen way. But technically speaking this could be a long drawn process one has to wait for evidence and get PwC’s side of story as well.

ICAI needs to act and act really tough with the auditors if they indeed were negligent. This is in the best interest of the profession and capital markets.

Nandini . 5 years ago

ICAI should take serious action against the auditors and also takeaway the memberships, so that it is lesson to the other Big 4 and their partners. The way things are compromised during audit are the only reasons for failure of these companies.

Imtiaz . 5 years ago

PwC should be barred from practicing in India. They are equal partners in the crime committed by Satyam. Perhaps they are more to be blamed for this fiasco than Raju himself.

These guys knew how serious the matter is, they also know how badly it can hurt the investor sentiments thus effecting the india business scenario.

10K is not even PwC’s per hour consulting charge, their practice license should be revoked and the govt. should take financial guarantees from them before granting permission to operate again in India.

Imtiaz

Yuva . 5 years ago

PWC has history of such issues… it will and it should go down. but then what is PWC is ‘people/auditors’ and most of them will find another job in another auditing frame. so things continues.

http://www.livemint.com/2009/01/07185424/Satyam-auditor-PwC-under-lens.html

shenoy . 5 years ago

ok

kishore Kumar K . 5 years ago

ICAI is there to take action about stayam financial fruad on PWC. PWC should not only be honest and should also appeared to be honest in deliverying its services.

supriya . 5 years ago

Poor scapegoat will be found to be sacrifised….

Big fishes will escape the net anyways….

Darshan . 5 years ago

First Safeguard Small investors interest.

santosh . 5 years ago

auditor duty to chek the froud and error becouse appointment of auditor is made by shareholders of the company so this all responsiblty goes to auditor who played 53000 lives and nos of shareholders who have invested there important life earning with the company who cares……….

Charan . 5 years ago

The penalties should be linked to networth of individuals or firms

Sudha . 5 years ago

PwC has no business to be in business in India. They have a history of such incompetence and companies should think before recruiting any of them.

Haresh . 5 years ago

All said and Done appreciate the fact that auditor is not suppose to detect fraud. His audit procedures should be reasonbableto ensure that things are true and fair.

As a CA I cant bear to see people commenting things out of context. In principal i agree, the auditor should go by the spirit of a transaction to uncover any wrongdoing but then there is a limit at which this can be done. Audit procedures can detect wrong doings in the formal course of business but management fraud detection requires forensic accounting to be done.

Lala . 5 years ago

Nothing will happen to PWC. If PWC goes downunder, who will audit the companies they will leave? Other Big 4. Where will they get people? They will hire these PWC guys and put them on the job. Procedures may have to get stringent for them to deliver better. Well, if ethats the way, lets make the procedures stringent. ICAI itself has been found lacking in their our conduct (see news on their Tax related issues). Let ICAI board have unbiased independent directors who are answerable to the parliament/public.

As regards current case, strict monetary and professional punishment to the individuals involved, will help in deterring such occurences in future.

Neha . 5 years ago

If you take a look at PWC’s Fee Graph, the fees have almost been doubled every year by satyam.Now what could be the reason behind that..In more greed? Then bear the brunt!

amitava sarker . 5 years ago

Satyam auditors PWC should punish for their active support to ex MD Raju. Without pwc ‘s suppot Satyam Ex MD Raju would not dare to cheat staffs,banks,shareholders so my angle PWC also had made guilty and be got punishment according to law of our land.

vimal Kumar . 5 years ago

It is not surprising that PWC were not able to detect the fraud. Speaking from experience the issue boils down to the fact that most consulting firms do not have personnel who havea practical experience in industry. They live in the rarefied world of consultancy which thrives on the ” independent” and “knowledgeable” label. Any one who has worked in a company would insist that the company gives a list of its bankers and have the bankers forward the statement of balace to the auditors directly. The sytem of revenue booking correlated with the bank statements and independent confirmation of balances in the manner described above could have brought to light the fraud at satyam Ultimately a thorough audit of the bank statements would have revelaed the fraud. Even ” ladling” activities could have been detected if there had been experienced industry personnel vis-a-vis consultants at the helm.

What Happens to Price Waterhouse, The Auditor For Satyam?

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