The crux of Price Waterhouse statement on Satyam fiasco: “Ramalinga Raju has stated that the financial statements of Satyam have been inaccurate for several years. Consequently, our opinion of the financial statement may be rendered inaccurate and unreliable.”
With this single statement, Price Waterhouse, auditors of Satyam Computer Services, has washed its hands of the cooked-up balance sheet that it was auditing for more than seven years.
While the auditors have gone by the book by declaring that they are withdrawing their opinion, the bigger issue is that the auditors are supposed to get a third-party confirmation of the statements given by the company before giving their “true and fair” view.
Investment consultants and analysts are, however, not impressed. Consultant Gul Tekchandani said, “In that case, why any audit in the first place?”
A senior chartered accountant expressed his disbelief at Price Waterhouses’ statement. “Though the primary responsibility lies with the company to prepare the financial statement, the verification has to be done by the auditors always. I believe that is what they are paid for.”
According to most chartered accountants, auditors should be doing a third-party confirmation like going to banks directly to verify the statements. In fact, nowadays auditors also check the financial software being used by companies.
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However, it seems that many auditors do not follow such practices. According to a source in a large software firm, auditors do take the company’s papers at face value. “Normally, we take banks’ statements at face value because we would not expect the company to forge that,” said another auditor. That may all change now.
But the issue becomes bigger, if one were to consider that analysts give their buy, sell or hold, based on these authenticated balance sheets. If the “true and fair” view is not sacrosanct, then investors will be more scared.