Fraud was a wake-up call for auditors

Fraud was a wake-up call for auditors

Mumbai: Immediately after B. Ramalinga Raju of Satyam Computer Services Ltd confessed to India’s largest corporate swindle, the spotlight fell on a typically conservative bunch of people—Indian auditors.

The cooking of accounts—to the tune of an admitted Rs7,136 crore—indicted not only Raju and his bookkeepers but also pointed fingers at the technology firm’s external auditors, who for several years certified that Satyam’s books were in order.

“It was much more than a wake-up call," said Mukund M. Chitale, a former president of the Institute of Chartered Accountants of India (Icai), the regulatory body for auditors. “The money involved was too big and the period over which it was done was too long."

Raju admitted to doctoring the company’s accounts and showing some Rs5,000 crore in cash and bank balances where none existed. A key audit test is to validate these numbers and professionals said Satyam’s auditors failed to apply standards that already existed.

“The processes were always there," said Dolphy D’Souza, partner at Ernst and Young, an audit firm.

Another auditor, who wanted to remain unidentified for fear of “annoying" his professional peers, was more forthright. “In the years of high growth, some members of the profession stopped short of being good watchdogs."

Two senior Price Waterhouse partners, S. Gopalakrishnan and Srinivas Talluri, who were auditors for Satyam, are in jail after investigators charged that they had knowledge of the fraud.

Although the misconduct shook up the profession in the country, raising uncomfortable questions over the way external auditors review company accounts, at least five auditors Mint interviewed for this story termed the Satyam incident an aberration.

A recent review of the accounts of some companies trading on the National Stock Exchange (NSE) could confirm the notion. Capital market regulator Securities and Exchange Board of India conducted a peer review of the 50 firms that make up National Stock Exchange’s benchmark Nifty index. Results for 47 companies are out and the regulator said it found nothing untoward in their numbers and termed Satyam a one-off case. In a peer review, the work done by a company’s external auditors is again checked by other independent auditors.

Price Waterhouse has since changed its management structure, bringing in the Singapore branch executive chairman Gautam Banerjee to head the Indian operations.

“Price Waterhouse and its professionals continue to cooperate fully with all authorities that are investigating the Satyam matter," the firm said in an emailed statement. “It is making a significant investment in training and taking other steps to further enhance audit quality."

“In India, we follow international standards," said Uttam Prakash Aggarwal, president of Icai. “Satyam was a failure of corporate governance and dishonesty on part of (the) management. After this, auditors have become more vigilant."

This sentiment was echoed by other auditors, who said that people in the profession have turned even more cautious.

Caution and vigilance in this instance means no longer taking things told to them by the management for granted, and more scrutiny in accepting clients.

“People are (also) realizing the importance of a strong internal audit within the company," said Nandita Shah, partner at audit firm A.J. Shah and Co. “Statutory auditors (or external auditors) are insisting on stronger processes internally."

Despite the Satyam debacle, some like Chitale stoutly defend their profession. “Everyone is talking as if the whole profession has failed," he said. “I don’t believe in that."