Auditors are supposed to be like policemen guarding the account-books of a company. What happens when they are caught napping, or worse, accused of wrongdoing?
Such a spectre haunted one of the world’s most respected auditing firms on Wednesday after Hyderabad-based Satyam Computer Services came clean on inflated revenues and other such wrongdoings in its accounting books.
Pricewaterhouse was earlier involved in the accounting fraud at Global Trust Bank, also based in Hyderabad, in 2003. While the lens turned on the firm amid a heated debate on corporate frauds and concerns, PW made a cryptic statement that said little.
“We have learnt of the disclosure made by the Chairman of Satyam Computer Services and are currently examining the contents of the statement. We are not commenting further on this subject due to issues of client confidentiality,” it said in a statement.
The big question is whether, like Arthur Andersen in the US saga on Enron, it will come crashing down.
The Institute of Chartered Accountants of India (ICAI) has said that it will investigate into the issue and if found guilty
will take the extreme action to the tune of cancelling the licence of the auditing firm forever.
As Raju’s letter mentions of inflation in accounting over several years, the auditing firm seems to have completely ignored the fraudulent practices or may have been a part of it.
An expert at a rival consulting firm said PW’s actions seemed to suggest “complete negligence.”
“The worst part is that a huge amount of cash has been overstated and this is something that can be easily verified,” he said.
Ironically, Satyam won the Golden Peacock Award for corporate governance in 2008, which got stripped off on Wednesday following Raju’s confessions.
“It is too early to say what will happen. One needs to investigate to know what happened where and it has to be fixed as to what was perpetuated by whom,” said Russel Parera, ceo, KPMG. “Clearly it involves all constituents, the independent directors, board, management and internal auditors and the Institute of Chartered Accountants of India (ICAI) will investigate and take action.”
The same will be done by the guilds in the US. In US there are two accounting gilds—CPA (certified public accountant) and Accounting Guild play the role similar to the ICAI in India and are mandated to regulate and ensure the code and ethics to be followed.