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March 24, 2009

Satyam investigations and damage control continue

The Institute of Chartered Accountants of India (ICAI) is continuing to investigate ways to strengthen the audit profession in India, following the Satyam Computer Services scandal where financial irregularities totalling about $1.44 billion were revealed at the software company. The institute, responsible for regulating the profession in India, is also determined to vigorously defend the reputation of local auditors.

Satyam’s audit firm, PricewaterhouseCoopers (PwC) member Price Waterhouse, and the audit engagement partners are under investigation for failing for several years to detect the fraud. The ICAI is pushing for measures such as auditor rotation, joint audit and withdrawal of bank managers’ autonomy in order to boost the independence of auditors.

ICAI president Uttam Agarwal met with the Indian Comptroller and Auditor General Commercial, Praveen Tripathi, this month to seek support for influencing other regulators such as the Reserve Bank of India and the Securities and Exchange Board of India to push these measures. According to the ICAI, Tripathi fully supported the institute’s efforts.

The institute has also, at the request of the Ministry of Corporate Affairs, formed a committee to report on issues including the operation of multinational accounting firms in India, their links with Indian firms, the rotation of auditors, the role of audit committees, the role of independent directors and the process of granting practice rights. A report was due to be delivered to the ministry on 10 March to assist it finalise changes to the Chartered Accountants Act and regulations.

The ICAI is also working hard to mitigate any impact the scandal has had on the public perception of the audit profession.

In a speech at a council meeting this month Agarwal said that as regulator of the chartered accountants in India, it is the ICAI’s responsibility to ensure the auditing profession is not questioned unless “any material fact or guilt of member comes on record”.

The institute’s Perspective Planning Committee has suggested advertisements should be released highlighting the role of ICAI and the profession in development of nation. This is based on actions taken by American Institute of Certified Public Accountants after the Enron fraud scandal.

Meanwhile, Price Waterhouse is to set up an independent review board to provide external guidance on the firm’s audit quality as Indian authorities continue their investigation of the firm’s former audit partners. The board will be made up of four members from outside PwC and a senior partner from another PwC firm.

Price Waterhouse chairman Ramesh Rajan said while he was confident in the overall quality of the firm’s services and its staff, the problems at Satyam have created a difficult environment.

As part of the review process, the firm has appointed a new head of quality assurance and risk management, who has been seconded from another PwC firm. In addition, Sharmila Karve is to take over as the new leader of its national assurance practice.

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