Buying shares in a company has a lot to do with trust. While common investors don't necessarily know the people who run the firm, they buy the shares as they come packaged with a form of guarantee.
To calm investors' fears, company reports are rigorously audited, capped with the asurance that they "represent fairly, in all material aspects". Auditors are appointed as overseers to make sure that all financial statements are the absolute truth.
In case of Satyam, the role of the auditor PricewaterhouseCoopers (PwC) has come under scrutiny. PwC has been Satyam's auditor since 2000 and it can hardly play the innocent victim.
PwC may face criminal action for allowing India's largest corporate fraud to proceed under its nose. The firm has been named in the First Information Report filed by the police, which marks the first step in a criminal investigation.
The Satyam scandal has raised serious questions about the role played by PwC as an auditor. During the period 2003-2008, while the accounting fraud was going on at Satyam, PwC's fee from Satyam increased three-fold, while other IT giants in India had not increased their auditors' fees as much.
In fact, PwC was paid up to thrice the fee paid by the larger top-3 IT companies to their auditors.
In his confessional statement to the police, Satyam Computer Services CFO Vadlamani Srinivas has said the auditors never pointed out any "deficiencies" during their discussions. But the most startling revelation was that fixed deposits were unreal and fictitious, which were managed with an understanding between the audit section and the top management.
The Institute of Chartered Accountants of India (ICAI) which governs the practicing chartered accountants and has the right to take action on PwC has taken a wait and watch stand. While they have issued a show cause notice on PwC there has been no reply from the auditor.
Chartered accountants body ICAI has constituted a six-member special committee to look into the auditing of crisis-hit Satyam Computer, whose disgraced founder chairman Ramalinga Raju has confessed to fudging accounts.
The special committee will be headed by ICAI Vice-President Uttam Prakash Aggarwal and submit its report on the Satyam auditing issue on February 11, a spokesperson of the regulator said.
ICAI council members -- S L Dogra, Amarjeet Chopra, Subodh Aggarwal and Akshay Gupta -- are members of the special committee. A government nominee -- K R Maheshwari, a banker and chartered accountant -- is the sixth member.
There were media reports of the PwC office in Hyderabad were raided but the auditor has denied a raid but have admitted to being questioned and have offered full corporation.
This is not the PwC's first brush with corporate scams in India. 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 scam has been dubbed as the 'Indian Enron'. In case of Enron, the auditor Authur Anderson was found guilty and lost all credibility. Will Satyam act as the Waterloo for PwC?