Institute of Chartered Accountants of India (ICAI) president Ved
Jain has defended the Indian audit profession in the wake of one of
the nation’s largest cases of corporate fraud.

Jain has also argued that the fact the fraud was not picked up
by the auditors is not a sign the nation needs its own version of
the US Public Company Accounting Oversight Board (PCAOB).

The scandal came to the light on 7 January when Satyam Computer
Services founder and chair Ramalinga Raju wrote to the company’s
board, admitting to fraud totalling more than INR7,000 crore ($1.44
billion). Most of the missing assets were in the form of cash and
bank balances.

Satyam employs about 53,000 people and reported revenue of $2.14
billion in its 2008 fiscal year.

Price Waterhouse, the Indian member firm of
PricewaterhouseCoopers, has come under investigation for its audit
of Satyam’s accounts from 2000 to 2008.

Jain said the whole profession is concerned by the incident.

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“It has raised serious issues about our profession here,” he
said. “But we are sure that all indications to date are that it is
one accident that has happened.”

Jain said the institute believes it is impossible for an auditor
to miss the inconsistencies for such a long period.

“It is very difficult to believe auditors can overlook this. If
that is the case then the whole of the auditing and accounting
profession needs to have a relook at their role,” he said.

After former global accounting firm Arthur Andersen was
implicated in the collapse of Enron in the US, part of the US
government’s response was to form the PCAOB, which is independent
from the profession. The Indian audit profession is regulated by
the professional body, the ICAI, however, Jain said similar action
in India is not warranted. He said the PCAOB had oversight of Price
Waterhouse because Satyam is listed on the New York Stock

“I have been told the PCAOB team has visited and inspected Price
Waterhouse last year,” he said. “So the obvious answer is the PCAOB
is not the answer to this problem.”

Jain said the fraud is not a sign the regulatory system needs to
be re-examined.

“It is human greed that has overtaken the persons. We need to
identify who is involved and how they did it,” he said.

The institute has established a special committee to investigate
Price Waterhouse.

The committee chair and ICAI vice-president Uttam Agarwal told
The Accountant he has received Price Waterhouse’s working
papers and reports from the past five years.

The technical team is examining the documents and in early
February will reveal the findings.

Indian law gives the ICAI power to discipline individual
chartered accountants, but not firms as a whole. However, the
institute has devised a ‘naming and shaming’ technique. It plans to
publish on its website the names of firms with partners that have
been found guilty of misconduct.

The ICAI has also asked the Securities and Exchange Board of
India (SEBI) to forbid listed entities from appointing as auditors
a firm whose partners have been found guilty of professional
misconduct by the ICAI.

Police investigation

Price Waterhouse chief relationship partner S. Gopalakrishnan
and engagement leader Srinivas Taluri have been detained by police
as part of the fraud investigation.

Gopalakrishnan is an elected member of the ICAI council.

Agarwal said Gopalakrishnan has not been asked to stand down,
but is not participating in any meetings related to the case.

Agarwal was unable to comment on what damage the Satyam affair
will have on the reputation of Price Waterhouse in India. He said
no evidence has emerged so far of any faults in the firm’s audits
or collusion between the firm and the former Satyam chair. However,
Indian media claims police investigations have found evidence of

It is also too early to say whether audit rules are effective,
or need to be revisited, Agarwal said. Jain said positives have
emerged from the situation, including the co-operation between

“We will ensure that expeditious and exemplary punishment will
be given to whoever is guilty so as to discourage people from doing
these type of things in the future,” he said.

Carolyn Canham

Satyam fraud case – how it unfolded

• 7 January
Satyam founder and chair
Ramalinga Raju writes to the company’s board, admitting to a hole
of more than $1.44 billion

• 9 January
The SEBI decides to bring in
peer review of the working papers of auditors of the companies
constituting the National Stock Exchange of India’s Nifty 50 and
the Bombay Stock Exchange Sensitive Index

• 10 January
ICAI serves Price Waterhouse
with a show-cause notice regarding its audit of Satyam’s

• 12 January
ICAI says it will publicly
name firms whose partners have been found guilty of misconduct

• 13 January
– Price Waterhouse writes to the Satyam board to say that in the
light of Raju’s confession, its audit reports for the quarter ended
30 June 2000 until the quarter ended 30 September 2008 should no
longer be replied upon

– The ICAI forms a high-level committee to look into issues
arising from the case

– The Indian media reports police search the offices of Price
Waterhouse in Hyderabad

• 14 January
Satyam appoints Deloitte and
KPMG to restate its accounts

• 25 January
Police detain Price Waterhouse chief
relationship partner S Gopalakrishnan and engagement leader
Srinivas Taluri to investigate them for fraud and criminal breach
of trust