PriceWaterhouse... Bloopers? Satyam scandal raises auditing questions

According to a recent news report in the Times Satyam investors are rather miffed at global accounting firm PwC for failing to detect corporate fraud to the tune of more than US$1 billion, over a period reported to be as long as 10 years.  In addition, questions are now being raised about the fees paid to PwC, which, according to a story in the Economic Times, were around twice that of those paid by Satyam's industry peers, such as Infosys.

With high profile case of corporate fraud and mismanagement seemingly on the rise (the Satyam case being referred to as India's Enron), the question begs, what role do auditors play, and, from the perspective of investors, what use? 

As an accounting company of considerable repute, having PwC listed as auditors must surely have provided Satyam investors with a degree of comfort that all things financial at the Indian IT giant were above board. The revelation that this is far from the case has massive potential to undermine PwC's brand value, in addition to drawing into question the role of auditors.

Last Thursday, PwC issued a statement saying that  "The audits were conducted by Price Waterhouse in accordance with applicable auditing standards and were supported by appropriate audit evidence." Well, if 'applicable auditing standards' are incapable of detecting billion dollar fraud over a period of almost 10 years, then, on behalf of investors the world over, I'd suggest those standards need to be reviewed... pronto.

With investigations ongoing, it will be interesting to see where the finger of blame comes to rest.

Comments

[BC Ghosh]

External auditing as an instituion is dead..all frauds repeatedly undetected by the 'famous' auditors just prove the point.

You cannot possibly have 'independent' auditing when fees for the auditors come from the clients. It is a clear case of conflict of interest, a sham. The same sham practiced by the rating agencies. It is a clear case of market failure and that the king is naked!

At least the the US closed the auditing firm Arthur Anderson after the Enron.
Wwhat will the govt of India do? Will they have the courage to stop Price Waterhouse from practising in India???

[Auditing]

Great post i believe it will be interesting to see where the finger of blame comes to rest.