"One can expect severe action against any defaulting member. Based on the information that we have got today, we will initiate proceedings... This information (Chairman's letter) is good enough to initiate investigation on the matter. We need to collect all the relevant facts and will move fast," Mr Ved Jain, ICAI President, told Business Line.

Mr Jain said that the ICAI, which is the regulator of the auditing profession, could take action against members if there was any negligence on their part in their attest functions. Satyam Computer Services financial statements for the year-ended March 31, 2008 were audited by Price Waterhouse, a firm of chartered accountants.

In a statement, Price Waterhouse said : "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."

The legal position is that no formal complaint was required for ICAI to initiate disciplinary proceedings and it could be done on the basis of information available with the public through the media . "The confession letter of Satyam Chairman is 100 per cent fit case for reference to the Board of Discipline of the institute," sources in the chartered accountants fraternity said.

Mr Jain said that the ICAI has initiated the process of collecting information on the Satyam case and sent letters in this regard to get all the facts.

The ICAI is yet to dispose of the matter relating to PriceWaterhouse's role as auditor in the Global Trust Bank (GTB) matter. GTB was amalgamated with Oriental Bank of Commerce at the instance of the Reserve Bank of India (RBI). "The inquiry on the matter is still on. We will take it to its logical end," Mr Ved Jain said.

Many chartered accountants and industry captains expressed shock over Satyam Chairman Mr Raju's admission that the balance sheet as on September 30, 2008 carried inflated (non existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 crore reflected in the books).

They also noted that it was normal practice for auditors to do surprise verification of cash at least once in a financial year. In respect of bank balances, auditors independently take confirmation from banks for balances at the end of an accounting period, they added.

On how easy would it be for software companies to inflate revenues, sources said that it could happen through number of ways including showing consignment sales as regular revenues or recognising revenues on incomplete projects .

http://www.thehindubusinessline.com/2009/01/08/stories/2009010851220300.htm

PwC's fate Hangs in Balance
Enron & Worldcom had changed the world of auditing from `Big 5' to `Big 4'. The brazen fraud at Satyam has the to  
shrink it to `Big 3', at least in India. The falsification of accounts by Satyam for the past several years has put a question mark on the very survival of its auditor, PricewaterhouseCoopers (PwC).

PwC had audited about 139 companies in India in the last fiscal. Of this, 97 are listed and 45 are part of BSE 500 Index. A few of these companies are already reviewing their relationship. For instance, Glenmark Pharma has said its board will decide on January 27 on whether to propose a change in the auditor.

Some other large companies audited by PwC include Maruti Suzuki, United Breweries, United Spirits, GMR Infra, Piramal Healthcare and Marico.

The Institute of Chartered Accountants of India (ICAI), an apex body of chartered accountants, is likely to take a strict stand on the issue. ICAI said any member firm found guilty in the Satyam case would be severely punished and the auditors could even be barred from practising for lifetime. Although there is no rule in India to penalise audit firms such as PwC on accounting fraud, a senior ICAI member said tainted auditors can be pulled up.

In 2007, ICAI had found partners of PwC guilty of professional negligence in underproviding for non-performing assets in the now-defunct Global Trust Bank (GTB). But this was only after RBI had blacklisted the firm when a string of irregularities surfaced at GTB. In July 2006, PwC's Japanese affiliate Chuo Aoyama was handed a two-month ban on auditing by Japan's Financial Services Agency, for allegedly certifying false accounts of consumer products major Kanebo.

Senior partners at PwC went into a huddle on Wednesday and remained incommunicado for most part of the day. Late in the day, the firm sent a terse statement: "We have learnt of the disclosure made by the chairman of Satyam Computer Services (Ramalinga Raju) and are currently examining the contents of the statement. We are not commenting further on this subject due to issues of client confidentiality."

Partners at other Big Four firms were cautious in their assessment, as investigations by authorities were yet to commence. "There would be an investigation by ICAI to find out whether there was an audit failure," said Richard Rekhy, head of KPMG India, an arch rival of PwC. "The ICAI's council has its own disciplinary committee that will see whether adequate due diligence was ensured by the concerned auditor," he added. Traditionally, most companies appoint one of the Big Four firms -- that includes KPMG, Ernst & Young and Deloitte -- to do the statutory audit, as it implies that the company's accounts are above scrutiny.

"This is a major loss of reputation for the auditing profession," said a senior partner at Deloitte India. "The Satyam issue will now put the entire profession in an unpleasant light."

An executive for the 170-member PwC said the statement was delayed as it had to be approved by the global parent firm in the US also. Satyam is  
NYSE-listed and any statement from PwC would be examined carefully by the SEC. "We are perplexed as to how a fraud of this magnitude could take place," said one senior PwC executive. "We usually check corporate transactions on a test basis. But this is not a small amount. Frankly speaking, the sheer size of it has left us clueless," he told ET on condition of anonymity. The firm is likely to undertake an internal investigation on its own, he added.

Statutory auditors are typically appointed by a company to audit the balance sheet and to verify whether the accounts presented are a true and fair view of the financial state of affairs. Their appointment is ratified at the annual general meeting (AGM) and is typically valid for one year. The accounting firm can be re-appointed following an approval at each AGM. According to RSM Astute India chairman Suresh Surana: "It needs to be ascertained whether any documentary evidence was presented to the auditors and whether that was forged. This episode also shows that there is too much focus on the short-term performance of a company."