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Chartered Accountants in Bangalore call for action against Satyam auditors

The Satyam scam has left a deep scar on the credibility of the auditors who audited the financial statements of the Company.

On 9th January, a seminar at Bangalore organized by the SIRC, saw a huge gathering of Chartered Accountants assemble to discuss the IFRS, the new accounting standards to be adopted in India in the coming years. The CFOs of Infosys and Wipro were the main speakers at the seminar.

Though the seminar was not related to Satyam, professionals assembled there remembered that some time back, Satyam had published that it was the first Indian Company to adopt IFRS for its accounts published for the year 2007-2008. In the press release issued on 21st April 2008,  Mr Srinivas Vadlamani, CFO of the Company had stated  that

" As a global standard, it enables comparison and comprehension of financials, regardless of a company’s location. And, since Satyam has adopted the standards, our operational reporting can be understood, without reconciliation, by more than 100 countries that already permit or require IFRS reporting. Further, the move provides clarity and consistency to Satyam’s investors in Europe, where our company is growing quickly.”

In the light of the confession of Mr Ramalinga Raju, vide his letter dated 7th January 2009, the cash position as on the date of the balance sheet was overstated by Rs 5040 crores, accrude interest was overstated by Rs 376 crores, Debtors were overstated by RS 490 crores and liabilities were understated by Rs 1230 crores cumulatively resulting in an overstatement of assets by a massive RS 7136 crores. Even for the quarter ending September 2008, it was admitted that cash was overstated by Rs 588 crores. It is not clear if any provisions were made for the massive contingent liability of US $1 billion which is claimed by Upaid in a legal dispute.

If such massive multiple misleading disclosures could result from the accounts, the statement made by the CFO appears to be a joke.

Naturally, the body of chartered accountants assembled in the seminar therefore gave expression of their feeling of shame and dismay at the ICAI for their failures. In the process many good suggestions came through.

One of the suggestions made by the participants was that the current system where the Company appoints the auditors and decides about their continuity is systemically fraught with a compromise of the integrity of the audit process. It was suggested that there should be a "Fixed three year term for an audit company" within which the firm cannot be removed without the permission of ICAI with perhaps a  "Rotation System" for appointing other firms in replacement.

The second important observation made was that whenever such irregularities are observed, action is taken only on the individual auditors of the firm and not the audit firm itself and in most cases the same auditors re surface in other audit firms. It was alleged that ICAI is also hesitant to take immediate action in such cases because of the so called formalities involved. The group of participants was almost unanimous in the feeling that in the interest of preservation of the credibility of the profession, the auditors of PWC involved in Satyam Scam as well as PWC should be punished with an exemplary punishment.

Yet another observation made by the participants was that there should be a "Whistle blower" type of system where ICAI should receive complaints and investigate in deserving cases. Some even suggested that since companies like Infosys and Wipro had a close understanding of the IT market, they could have smelt that some thing was fishy in Satyam accounts and such an observation could have been brought to the notice of ICAI. Some suggested that the "Peer Review" system could have raised an alert if it was effective.

Though some felt that the standards themselves are no guarantee against fair accounting, there was a general consensus on the fact that ICAI should act swiftly to demonstrate its own commitment to fight against the gross negligence shown by the auditors of PWC.

There was a reasonable hope expressed by the participants that the ICAI will take necessary actions to introduce some changes in the way it deals with erring auditors so that public image of the profession of chartered accountants does not get permanently damaged.


January 10, 2009

Related Article:

Satyam Fraud .. Chartered Accountants Call for Action against PWC

Mr Raju's Letter