Are the banks to blame for L'Affaire Satyam?
Sukumar Ranganathan -
Friday, February 13, 2009 11:34 AM
A very senior partner at a multinational accounting firm and I were chatting yesterday about Satyam and the role of its former auditor Price Waterhouse in the fraud. How could the auditor not check the bank accounts of the company? I asked. The partner said he wasn't surprised this was the case. At least eight out of 10 banks to which audit firms write to, asking them to verify whether the company they are auditing has a certain amount of money in its account with that bank, do not respond, the partner claimed.
In each case, when an audit firm is looking at the books of the account of a company, the partner added, it writes to the headquarters of the bank as well as the branch in question, asking for a verification on the amount actually in the account of the company. "They almost always do not respond," he said.
This blogger couldn't immediately verify if this is indeed the case.
So, how do audit firms sign off? I asked the man.
They don't, he said. And then the companies being audited get into the act and say, "Fine, we know the branch manager, so let's get the certificate for you." And they do so.
If that's how audit firms verify bank accounts of companies they audit, I am not surprised the two Price Waterhouse partners who signed off on Satyam's accounts got taken in by some fake bank certificates. That is, of course, assuming they are innocent as the firm as been claiming in its statement which is in variance with statements by the public prosecutor involved in the case who claims the auditors have admitted their involvement and complicity. Various arms of the Indian government and at least two regulators are working to prevent another Satyam -- making it mandatory for banks to respond to queries from a company's auditor looks to me like an easy place to start.