Third mess-up by PwC after GTB, DSQ Soft

The Satyam scam puts a big question mark on the role of its auditor, PricewaterhouseCoopers (PwC), which is supposed to be the statutory minder of the infotech company’s accounting practices and books.

The specific question that it has to answer is: how did it let pass an accounts fudge of such a magnitude? Did it have a hand in it, or just turned a blind eye to the goings on in Satyam, or was simply incompetent to cotton on to the fudge?

As the questions resounded in India Inc on Wednesday, almost the first thing that PwC did was gag its employees. An e-mail sent out by PwC India’s chairman, Ramesh Rajan, to its employees read: “You would have all read or heard about the developments in Satyam. We have commenced a comprehensive internal review. In the meantime, I would request all of you not to discuss this matter or offer any comments to the press or external sources.”

In public, PwC took shelter behind the standard fallback: confidentiality of its clients. In response to a questionnaire Financial Chronicle sent to PwC, an official would not go one word beyond saying, “We have learnt of the disclosure made by the chairman of Satyam… and are examining the contents of the statement. We are not commenting further on this subject due to issues of client confidentiality.”

No one from the accounting and consultancy giant was available for further comment. One official, however, said on condition of anonymity that the PwC man heading the team that audited Satyam was partner Srinivas Talluri. Financial Chronicle was unable to get more information about him.

This is not the PwC’s first brush with corporate scams in India – or for that matter abroad. Earlier, the DSQ Software and Global Trust Bank scams had the same thread running through them – PwC (or Lovelock Lewis, also part of the same network) were the statutory auditors for both.

The Satyam case has a parallel in the 2005 book-keeping fraud at the Japanese cosmetics and textiles maker, Kanebo, where again the auditor was Chuo Aoyama PwC.

In India, Price Waterhouse (PW) and PwC are both licensed to the London headquartered PW International. PW India chairman Rajan is a senior partner in both PwC and Lovelock & Lewis.

In both the two past Indian cases and in Satyam, PW’s partner S Gopalakrishnan was signatory to the audit report. It was only in the last Satyam audit report that Talluri was the signatory.

Gopalakrisnan is also a central council member of the Institute of Chartered Accountants of India (ICAI). Several attempts by Financial Chronicle to reach him on his mobile phone failed.

Another official, who did not wish to be named in this report, said that after the Global Trust Bank fiasco, some of the partners had sought a probe against Gopalkrishnan, a demand that the company managed to stave off.

Following the DSQ collapse, Dinesh Dalmia, its promoter and managing director was arrested. In Japan Chup Aoyama PricewaterhouseCoopers was banned by the country’s regulator. Then, PwC floated a new company called Arata to take up audit assignments with new partners.

The failure of PwC to stop the Satyam scandal could lead to a loss of its licence or its key officials being debarred from practice. B M Agarwal, chairman of the western India region for ICAI said, “We are seriously looking into the matter. If the firm is found guilty, we will cancel their licence and the people who audited Satyam will be barred from practising in India, depending on their extent of involvement.”

PwC in India counts audit as just one of its practices. Tax, regulatory issues and consulting are its other notable lines.

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