Satyam: an audit nightmare

Every auditor around the world will be looking at Satyam this week and wondering how PricewaterhouseCoopers could not spot an accounting fraud running to about $1bn dollars.
The firm in India has declared in a letter to the Satyam board that none of its audits from June 2000 to September last year could be relied upon in light of B. Ramalinga Raju’s confession that the fraud had taken place.
It’s interesting to ponder what that means for the view rendered in some speculation that it was all about timing – strange transactions took place only after the last audit had been completed.
PwC’s note reveals they have significant doubts about all the audits they’ve done. That’s eight years, which gives either KPMG or Deloitte a big job in helping Satyam restate all those accounts. It will also easily raise the possibility that $1bn is a conservative estimate for the size of the problem.
Of course, declaring the audits unreliable is not the same as saying they were complicit. PwC maintains that they carried out the audit to the required standards.
Even a professor of corporate governance insisted to me today that you can only audit the documents you are given to read. But OK, where does that leave us? Well, if documents don’t lead to a negative opinion then they are incomplete or perhaps misleading. But on a large audit that would need hundreds, perhaps thousands, of misleading documents. Which would need a production line to produce. This is not impossible and certainly not unprecedented – but it needs the coordination of more than one person.
So B. Ramalinga Raju acting alone? To fool everyone looking at his accounts? Interesting question.

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