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Contrary to reports about police forcing their way into the Hyderabad office of Price Waterhouse — yes, it's still two words there — the audit firm insists it turned over records without any raid.
Marie Leone, CFO.com | US
January 13, 2009
Price Waterhouse India has denied that its offices in Hyderabad were raided by criminal investigators as they searched for information related to the accounting scandal at Satyam Computer Services. According to a statement released by the audit firm in India, there "was no raid" at the Hyderabad office on Tuesday, as was reported by several news organizations.
Rather, Price Waterhouse officials had a discussion with different agencies about the Satyam case, and were asked to surrender documents related to the investigation, the firm said. "We are fully cooperating with the agencies and providing whatever information/documents/materials that have been asked for," it noted in its statement.
Price Waterhouse India is separately owned from PricewaterhouseCoopers and its entities in New York and London, but is a member of the PricewaterhouseCoopers International organization. The India-based company has retained the division between the Price and the Waterhouse, which was eliminated by PwC in the U.S.
Last week, Satyam announced that its chairman and founder, B. Ramalinga Raju, had resigned as CEO after admitting that he orchestrating a massive financial fraud at that country's fourth-largest software-services provider. In a four-page letter to the Bombay Stock Exchange, Raju wrote that he was involved in a scam that included creating a $1 billion cash entry on the company's books. Raju, along with his brother, B. Rama Raju, were arrested later in the week. The CFO, Srinivas Vadlamani, resigned soon after, and also was arrested.
Satyam is listed on both the Bombay Stock Exchange and New York Stock Exchange.
Price Waterhouse India is Satyam's auditor. The firm and the Satyam audits it signed-off on are currently being scrutinized by law enforcement agencies, as well as securities regulators, who are trying to figure out whether any liability for the fraud will fall to the audit firm.
In the initial statement from Price Waterhouse India, the unit said: "The audits were conducted by Price Waterhouse in accordance with applicable auditing standards and were supported by appropriate audit evidence. Given our obligation for client confidentiality, we cannot comment upon the alleged irregularities. Price Waterhouse will fully meet its obligations to cooperate with the regulators and others."
The separate Price Waterhouse India says that it has no legal linkage to PwC. Therefore, it is unclear whether any legal liability arising from the Satyam case will affect the larger organization.
The reason for the legal separation among member companies harks back to local laws. Many countries, including India, required that audit firms be owned by locally-trained accounting partners. The European Union just recently loosened that ownership restriction.
For a local audit firm to become a member of the PwC network it must follow organization-wide standards, policies, and procedures.
Satyam announced this week that it would be hiring a new accounting firm as early as Wednesday. However, the company did not make clear whether the new accountants will replace Price Waterhouse as auditors, or be used in some other capacity, perhaps as forensic experts.
On Jan. 9, the Indian government cleaned house at Satyam, ousting the current board of directors and assigning the Ministry of Corporate Affairs to fill the 10 slots with directors of its own choosing. The first three board seats have been filled by Deepak Parekh, chairman of India's Housing Development Finance Corp., Kiran Karnik, former president of National Association of Software and Service Companies, and C. Achuthan, director of the National Stock Exchange and former member of both the Securities and Exchange Board of India and Securities Appellate Tribunal.
"The critical factor in all governance is the board, who are trustees for the shareholders," asserts John Alan James, a governance expert and adjunct management professor at Pace University's Lubin School of Business. He adds: "Board members hire the lawyers, accountants and auditors that make sure the trustees carry out their fiduciary duties."