Monday, June 15, 2009
"Hyderabad's Central Prison is no country club jail. ... Behind its hulking, metal-studded door live more than 900 men, held for crimes like pick-pocketing and murder. Then there are the two accountants. ... But Satyam's independent auditors, two partners from the Indian office of [PWC], say they are innocent and remain in prison, charged with multiple offenses, including dishonesty, cheating, falsification of accounts and using forged documents. ... In an interview in the prison's dim, noisy, concrete visitor's hall this week, the accountants said they were scapegoats for a system that failed to catch years of wrongdoing. 'I've been 31 years in this profession, and I have never seen auditors being booked.' said Subramani Gopalakrishnan, one of the jailed auditors and the founder of the [PWC] office in Hyderabad. ... [PWC] audited Satyam's books worldwide from 2001 until the company's founder, B. Ramaliga Raju, confessed in January that he had been manipulating the accounts for years and that more than $1 billion in cash on the balance sheet did not exist. ... [PWC], facing numerous shareholder class-action suits and investigations, is under intense pressure to prove that its partners were not complicit. But a preliminary report from India's Central Bureau of Investigation accuses the auditors of 'consciously' overlooking accounting irregularities and 'knowingly' certifying inflated and falsified data. In a petition for bail for the partners, [PWC] said that the government had 'no material or iota of evidence to even remotely suggest' that the partners 'had any knowlege' that Satyam documents were falsified. .. 'The whole world believes that preventing and detecting fraud is my responsibility,' [Srinivas Talluri] yelled through the wire fence. 'No concerns were ever brought to us by anyone.' He said he 'could not imagine'; the company would forge depository receipts, or balances on fake bank letterheads. Banks in India are not required to give balances directly to auditors, he added", my emphasis, Heather Timmons, 29 May 2009 at the NYT, link: http://www.nytimes.com/2009/05/29/business/global/29prison.html.
This is laughable. At best these two "auditors" should get an "ostrich instruction" if tried in a US Federal District Court. That they apparently chose not to get bank confirmations is their and PWC's problem. I think this admissible "res gestae" showing consciousness of guilt. Let the trier of fact decide. This has been US practice for about 60 years. Is PWC one firm"? Well PCAOB, did you know Indian chartered accountants don't get bank confirms? If not, why not? If CPA audits cannot detect material frauds, who needs them? This case seems to be PWC's world-wide declaration of incompetence, or worse. PWC, you should be ashamed of yourself. You, who does litgation support work, should know: fraud is inferred from acts. Fraud is rarely if ever "proven" through direct evidence. Anyone using PWC's litigation support services, take note. Apparently PWC don't know nuttin'. Has PWC world-wide seminars for its partners who audit SEC registrants? Did PWC mention US v. Simon, 425 F2d 796 (2d Cir., 1969)? I realize it's a 40-year old case, but in it, a Big 87654 CPA went to prison. He was a partner in Lybrand, Ross Brothers & Montgomery, a PWC predecessor. One reason fraud is as common as it is, is CPAs and attorneys are rarely indicted for aiding and abetting fraud. "Could not imagine"? What about "professional skepticism"? My last Satyam post was on 22 April 2009, link: http://skepticaltexascpa.blogspot.com/2009/04/satyam-and-pwc.html. I once saw this in a case, "to aver that an act is fraudulent is to aver a matter of law, not a matter of fact". The same act may be fraudulent or negligent. The difference is: intent.