‘Price Waterhouse Partners connived with Satyam’s founders’

http://economictimes.indiatimes.com/industry/services/consultancy-/-audit/pricewaterhouse-partners-connived-with-companys-founders-cbi-court/articleshow/46901569.cms

‘Price Waterhouse Partners connived with company’s founders’

  1. R. Sukumar

14 April 2015

The Times of India

HYDERABAD: The trial court of Central Bureau of Investigation (CBI) in India’s largest accounting fraud at Satyam Computer has construed that the two former partners of audit firm PriceWaterhouse had `connived’ with the software outsourcer’s founders in fudging accounts, a claim the audit firm continues to contest.The global audit firm has been claiming for years that its former partners were innocent and were victims of fraud perpetrated by the outsourcer’s founders and is currently fighting claims of damages by Tech Mahindra, the new owner of the scam-tainted firm.

The court, while declaring the PriceWaterhouse partners Subramani Golapakrishnan and Srinivas Talluri (Accused No. 4 and 5, respectively) as guilty, has sentenced them to seven years of rigorous imprisonment, which is on par with the prime accused Ramalinga Raju and others ­ 10 in all.

The court was convinced with the evidences the CBI presented to prove that the PriceWaterhouse partners, who also signed off accounts of another firm Infotech Enterprises

(now Cyient), had adopted `dual standards’ for the two Hyderabad-headquartered software firms.

While the PriceWaterhouse auditors preferred to rely upon hard copies supplied by the key accused in Satyam Computer, they collected the live invoice samples directly from the relevant computer systems of Infotech while conducting the statutory audit, said CBI.

The auditors, who obtained direct confirmation on the requisite proforma from the bankers and reviewed online the current account balances of Infotech, however, relied upon forged bank confirmation letters supplied by the other accused, apart from failing to verify the company’s current account balances online. The PriceWaterhouse partners had also written directly to the debtors and vendors while conducting the audit at Infotech but failed to adopt similar protocol while auditing Satyam books.

Declining to accept the contention of the auditors that their failure to be vigilant and perform their duties as per the mandate was merely on account of negligence, the CBI court judge BVLN Chakravarthi said, “The facts and circumstances clearly shows that they (PriceWaterhouse partners) connived with the accused A1 to A3 (Satyam’s founder Ramalinga Raju, his brother and then managing director Rama Raju and then chief financial officer Srinivas Vadlamani) in furtherance of the conspiracy and certified incorrect annual financial statements.”

Devoting more than a third of space to the auditors in his 971-page verdict, the trial court judge also observed that “the statutory auditors suppressed the material information from the audit committee (headed by Mendu Rammohan Rao, former dean of Indian School of Business) and projected false picture to support the other accused.”

Further, the judge concluded that “All this was done by the external auditors in furtherance of the conspiracy having fully known about the fraud in the company committed over a period.” The trial court magistrate was convinced by the contention of the CBI that the PriceWaterhouse partners had “suppressed the fraud from the audit committee” and signed off the balance sheets and audit reports in furtherance of the conspiracy since “the major part of the audit fee has gone to them and accordingly they were rewarded for the illegal acts.”

The court was convinced with the CBI’s evidences that the statutory auditors were “paid in excess”, compared with the audit fee by other companies including Infosys and Wipro, and the `prominent role’ that the prime accused Ramalinga Raju and his brother Rama Raju with the aid of Srinivas Vadlamani played “in the appointment of the auditors and fixing of their fee over a period from the year 2000-01to 2007-08.”

After taking into account the depositions of senior executives of Infosys and Wipro, the trial court judge found `beyond all reasonable doubt’ that the PriceWaterhouse partners “intentionally overlooked visible facts about the fraud in the company and this lead to certification of false financial statements which suppressed the overstated assets in the form of bank balances and debtors, fictitious sales revenues and inflated profits and resulted in publication of incorrect annual financial statements.”

Further, judge also said the “conduct of the auditors shows that they have violated their statutory duty towards the share-holders of the company who placed faith on the auditors and the facts and circumstances clinchingly shows that the accused A4 and A5 are also responsible for these misdeeds as they certified the financial statements of the company in furtherance of the conspiracy in violation of auditing standards and practices over the years.”

Referring to the excess payments the auditors received from the company compared to other larger peers in the sector, the CBI court magistrate said, “Any amount received by them (auditors) from SCSL (Satyam Computer) either in the form of audit fee or other amounts to wrongful gain as they suppressed the truth about the fraud in connivance with the other accused in the case particularly the accused A1 to A3.”

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