Indian outsourcing company Satyam Computer Services has chosen Deloitte and KPMG to help restate financial statements audited by PricewaterhouseCoopers' Indian affiliate, Price Waterhouse, after Satyam's chairman admitted to a massive accounting fraud.
Satyam chairman Ramalinga Raju confessed last week to falsifying over $1.04 billion worth of assets in the company's second fiscal quarter (see Indian Outsourcer Admits Massive Accounting Fraud). Within days, he resigned from the company and was jailed along with his brother, B. Rama Raju, a former managing director. CFO Srinivas Vadlamani was also arrested.
It is not clear yet whether Satyam will retain Price Waterhouse as its auditor. "Deloitte and KPMG are going to restate accounts from the past," said Satyam spokesperson Archana Muthapa. "For the appointment of the auditor, the prerogative lies with the shareholders; it will be decided in the next [annual general meeting]." Price Waterhouse will remain Satyam's auditor until the next shareholder meeting.
The company's board has been sacked and a newly appointed director, Deepak Parekh, promised a change in auditing firms. "New independent accountants that we appoint shortly will restate the numbers and confirm the veracity of those numbers," he said, according to The Wall Street Journal.
PricewaterhouseCoopers did not respond to a request for comment. Last week, the firm contended that the audits were conducted "in accordance with applicable auditing standards and were supported by appropriate audit evidence."
This week, the firm said in a letter, "We placed reliance on management controls over financial reporting, and the information and explanations provided by management." In the wake of Raju's admission, however, the firm said that its opinions on Satyam's financials "may be rendered inaccurate and unreliable."
The firm said in a letter to Satyam's board, "Price Waterhouse's audit reports and opinions in relation to Satyam's financial statements for the audit period should no longer be relied on." The audit period in question stretches over eight years, from the quarter ended June 30, 2000 to the quarter ended Sept. 30, 2008.
Satyam's former CFO, however, has reportedly told the police that the firm was partly to blame, according to the Economic Times of India. Vadlamani claimed the auditors never pointed out deficiencies in discussions with management. The paper also reported that the Reserve Bank of India may ask banks to be more cautious in their dealings with PwC in the wake of the Satyam scandal, quoting an unnamed official with the Reserve Bank.
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