First Enron, Now Satyam Computer Services

Last Saturday, we spoke about the revival of the term “governance” after corporate greed led to the demise of corporate giants Enron and WorldCom. The Enron scandal also led to the dissolution of Arthur Andersen, one of the “big five” public accounting firms at the time.

In Chanchalguda India, two auditors, Srinivas Talluri and Subramani Gopalakrishnan, from the remaining “big four” public accounting firms, PricewaterhouseCoopers (PWC) are currently in prison, charged with “multiple offenses, including dishonesty, cheating, falsification of accounts and using forged documents”.

PWC audited the books of Satyam Computer Services, an outsourcing information technology firm whose founders confessed to “cooking the books” to the tune of showing an extra $1 billion in cash that did not exist. According to R.K. Gupta, managing director at Taurus Asset Management in New Delhi, “this has put a question mark on the entire corporate governance system in India”.

In hindsight, one of the imprisoned auditors said that “the only thing he may have done differently would be to rely less on Satyam’s employees to provide copies of the company’s bank balances” --- REALLY??????

As a former auditor, there’s nothing better than receiving corroborating information from an independent source. Basic auditing 101 dictates sending confirmation of balance requests directly to a bank. However, in all fairness to PWC, “banks in India are not required to give balances directly to auditors”….. I doubt that will be the case going forward.

By the way, the head of Satyem Computer Services, Ramalinga Raju stated “I am prepared to subject myself to the laws of the land and face consequences thereof”. I wonder if Bernie Madoff feels the same way.

Joann L.

http://www.reuters.com/article/businessNews/idUSTRE50616H20090107?feedType=RSS&feedName=businessNews
http://www.nytimes.com/2009/01/08/business/worldbusiness/08satyam.html
http://www.nytimes.com/2009/05/29/business/global/29prison.html?_r=1