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Now That They’ve Put the Biggest Fraud in India’s History Behind Them, PwC Thinks an Independent Audit Regulator Might Be a Good Idea
PwC India Chairman Deepak Kapoor is in Davos and must be engaging in some real […]
Apparently There’s a Food Chain for Satyam Blamestorming
The head of the Institute of Chartered Accountants in India seems to feel as though 2009’s massive Satyam failure was not, in fact, a failure of the auditors but levels before the auditors and then the auditors. “There were promoter shareholders, executive directors and directors, and the auditors were the last rung. On the other side, there were independent directors, one of whom was a dean of the Indian School of Business, but nobody questions the role of independent directors.”
Amarjit Chopra feels corporate governance (or should that be complete lack of…) is to blame, not the PwC auditors who somehow missed the following:
• $1.09 billion in artificially inflated cash and bank balances (psst, baby auditors, that’s called a material amount)
• $81.59 million in accrued interest that was accrued out of thin air and never existed
• An understated liability of $266.91 million
• An overstated debtors’ position of $575.27 million that was more like $106.33 million (oops)
Maybe PwC should have waited for Chopra’s comments. Had they done so, they wouldn’t have already come out and admitted they missed a few issues on the September 30, 2008 Satyam balance sheet:
The former [Satyam] chairman has stated that the financial statements of the company have been inaccurate for successive years. The contents of the said letter, even if partially accurate, may have a material effect (which is currently unknown and cannot be quantified without thorough investigations) on the veracity of the company’s financial statements presented to us during the audit period. Consequently, our opinions on the financial statements may be rendered inaccurate and unreliable.
So if that’s the case, someone remind me why we even have auditors then? Sure financial statements belong to management but aren’t auditors there to give everything a good once-over to ensure giant fraud is not staring them directly between the eyes? You’d think at least one of those brilliant Indian first years would have realized that cash was a tad high once they started doing the work.
PCAOB Publishes Part II of Deloitte’s 2008 Inspection Report, First Ever for a Big 4 Firm
They really, really, really don’t appreciate it when you blow off their recommendations. Here’s the statement from the Board:
The Public Company Accounting Oversight Board, in anticipation of questions about the publication of previously nonpublic portions of its May 19, 2008 inspection report on Deloitte & Touche LLP, issued the following statement today:
“The quality control remediation process is central to the Board’s efforts to cause firms to improve the quality of their audits and thereby better protect investors. The Board therefore takes very seriously the importance of firms making sufficient progress on quality control is n inspection report in the 12 months following the report. Particularly with the largest firms, which are inspected annually, the Board devotes considerable time and resources to critically evaluating whether the firm did in fact make sufficient progress in that period. The Board can and does make the relevant criticisms public when a firm has failed to do so.”
So to clarify, Deloitte had until May 19, 2009 to get their methods up to par but failed to do so. To put this into a little bit of context, Jim Doty was not yet the Chair of the PCAOB and Barry Salzberg was still the CEO of Deloitte’s U.S. firm. Does this mean that the PCAOB has been stepping up its game and this is the first instance of many to come? Hard to say but the audits that this inspection report cover are nearly five years old, so it’s debatable as to the value of Part II being made public now.
For Deloitte’s part, here’s current CEO Joe Echevarria’s statement:
“Deloitte is committed to the highest standards of audit quality and as newly elected CEO, it is my foremost priority. Our commitment extends from the top and cascades throughout our entire organization. We place great value on the PCAOB’s input and continue to work with the Board in support of our shared objectives. We recognize that audit quality is fundamental to protecting investors and ensuring the effective functioning of the capital markets.
“We have complete confidence in our professionals and the quality of our audits, and agree that there were and always will be areas where we can improve. In our drive for continuous improvement, we have been making a series of investments focused on strengthening and improving our practice, and will continue to do so to make Deloitte the standard for audit quality.”
In other words, a non-response response. However, it’s much more measured than Deloitte’s response to the initial release of the report. Their response letter spelled out their feelings quite clearly:
Professional judgments of reasonable and highly competent people may differ as to the nature and extent of necessary auditing procedures,conclusions reached and required documentation. We believe that reasonable judgments should not be second guessed and therefore disagree with a number of comments as indicated[.]
Deloitte’s letter is located Appendix C. You can read the full report, including all the details from Part II that were previously unpublished, on page 2.