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Satyam scam: Will PwC be punished for lapses?

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26/01/16, 15:06

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Satyam scam: Will PwC be punished


for lapses?

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Saptarshi Ghosh, Jan 24, 2009, 07.15pm IST

The Satyam fraud is stunningly alarming not only because it


is the biggest accounting and auditing fraud in India till date
but also because it directly threatens to engulf the IT sector
in India at this time of economic downturn and undermine
India's global image as one of the most promising economic
stories in the new millennium. While the Ketan Parekh fraud
in the late 1990s brought about the collapse of several cooperative
banks 67th
and the
largest mutual
India
celebrates
Republic
Day fund in India (Unit
Trust of India US-64 ),which was located right in the middle
of the Indian financial system, the Satyam fraud clearly
brings out the lacunae in the systems, practices and
methods of auditing and accounting in India and situates
itself right at the heart of India's booming IT industry.

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(The Great Fall of Satyam Satyam: Full Coverage Top


Accounting scandals Five facts about Satyam)

A chilling similarity between Satyam and Parekh lies not just in the scale of the frauds but also the incidence
of criminal conduct by the top management of the various companies involved and the conflicting interests
between the various groups of accountants, bankers, auditors and top management. An inescapable factor is
the clearly questionable auditing standards at large and the professional ethics generally of the auditors who
have supposedly audited the company's books for at least the last four to five years.

Apple reshuffles India business to


expand mkt reach

The fundamental question that needs to be asked of the audit and accounting firm, Price Waterhouse in this
India
displays military prowess,
case, is - why was there such a critical absence of, or failure to enforce, control systems and/or audits in
cultural
heritage
R-Day
accordance
with theat
firm's
best practices for such a prolonged period of time? Clearly it is the job of the

Apple India has merged its product divisions


and split its business into two in a bid to expand
its market reach and improve efficiency.

Forauditor
the firstnot
time,
contingent
from
the Frenchoperate with prudent levels of risk, but also, that their books are
onlya to
ensure that
companies
35th
Infantry
Regiment
was
given
the honour
of regime.
subject
to an
effective
and
accurate
scrutiny
leading the marching contingents.

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The fact that the Satyam fraud went on undetected and uncorrected for years and without any external audit

Army bravehearts perform daredevil stunts at


and accounting mechanism picking it up raises serious questions as to the actual degree of implementation
Rajpath 26
and enforcement of such practices as part of a credible, effective and sound auditing system. Also, given that
French
soldiers
part for
1stalso
timeinvolved
in R- in the affairs of Global Trust Bank and DSQ not long ago, it may
the audit
firm intake
question
was
Day
parade to ask what corrective actions were taken by the firm to mitigate or prevent opportunities for fraud,
be relevant
reckless mismanagement, and conflicts of interest raising the potential for such behaviour within its own
organisational set-up.
Clearly, there should have been a clear objective and roadmap within the firm to achieve certain standards of
ethics and benchmarking of audit practices after DSQ and Global Trust Bank. In any case, there does exist
various annual reviews of frauds and serious irregularities pointed out in several audit reports after the Ketan
Parekh fraud in India which should have become a basis for reviewing the basic audit and accounting
systems of the many auditing firms.
The second question is whether the Indian authorities can and/or be able to hold the audit and accounting
firm liable if serious auditing lapses and accounting irregularities come to view. This question is important as it
will go a long way not just to ensure that acceptable, correct and effective audit mechanisms are put in place
but also in terms of building the capability within the legal system that puts the burden of serious auditory
lapses on the entity itself. The reasons are two-fold.
First, the inability of auditors to detect fraud and the diversion of funds separately or conjointly constitute a
key element of the 'expectations gap' between public and professional perceptions of auditor's responsibilities
and usually gives leads to a possible collusion between the auditor and the management.
Second, the inability of auditors to correctly and honestly do their functions often, in turn, result in lack of

http://articles.economictimes.indiatimes.com/2009-01-24/news/27653809_1_auditing-satyam-fraud-satyam-scam

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Satyam scam: Will PwC be punished for lapses? - timesofindia-economictimes

26/01/16, 15:06

meaningful corporate governance within the company both in terms of the directors and senior management
unable to evaluate and review existing internal control systems through established internal audit functions
and/or to implement, enforce, refine and improve upon such internal control systems.
A thorough investigation by the relevant authorities and an effective legal prosecution is the order of the day as
it will ensure that honest and correct auditing and accounting methods take precedence, that best practices are
meaningfully adopted and followed by audit firms and that the problems of corporate governance are genuinely
redressed as opposed to the mere issuance of guidelines that some fail to follow.
(The author is a research fellow, Brunel University, UK and International Banking Regulations
Consultant with PDS & Associates, an India-based Law Firm)

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http://articles.economictimes.indiatimes.com/2009-01-24/news/27653809_1_auditing-satyam-fraud-satyam-scam

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