Tuesday, April 5, 2011

U.S. regulators slap $17.5 million fine on Satyam, auditors

In a major development in the Satyam fraud case, US regulators on Tuesday fined the software firm and its auditors PriceWaterhouse India up to USD 17.5 million for the accounts bungling that went undetected for several years.

The US Securities Exchange Commission said that Satyam Computer Services have agreed to pay a fine of USD 10 million towards settlement of charges of fraudulently “overstating the company's revenue, income and cash balances by more than USD 1 billion over five years“.

Besides, the SEC's has also asked PriceWaterhouse India, the erstwhile auditors of Satyam Computers, to pay USD 6 million in penalty for conducting “deficient audits of the company's financial statements and enabling a massive accounting fraud to go undetected for several years.”

Also, the statement said, Lovelock & Lewes and Price Waterhouse Bangalore have agreed to pay the Public Company Accounting Oversight Board (PCAOB) a USD 1.5 million penalty for their violations of PCAOB rules and standards in relation to the Satyam audit engagement.

“PW India violated its most fundamental duty as a public watchdog by failing to comply with some of the most elementary auditing standards and procedures in conducting the Sataym audits. The result of this failure was very harmful to Satyam shareholders, employees and vendors,” said Robert Khuzami, Director of the SEC's Division of Enforcement.

While Satyam could not be contacted for comment, Deepak Kapoor, Chairman of the PwC network of firms in India, said: “Our settlements with the SEC and PCAOB are positive steps and important milestones for PW India. The confession of fraud at Satyam by its chairman was a shock to the Indian business community and to all concerned.”

Besides, the SEC statement said, PW India affiliates agreed to refrain from accepting any new US-based clients for six months, establish training programmes for its officers and employees on securities laws and accounting principles; institute new pre-opinion review controls; revise its audit policies and procedures; and appoint an independent monitor to ensure these measures are implemented.

Cheryl Scarboro, Chief of the SEC's Foreign Corrupt Practices Act Unit, said: “PW India failed to conduct even the most fundamental audit procedures. Audit firms worldwide must take seriously their critical gate-keeping duties whenever they perform audit engagements for SEC-registered issuers and their affiliates, and conduct proper audits that exercise professional skepticism and care.”

The SEC's order instituting administrative proceedings against the firms finds that PW India staff failed to conduct procedures to confirm Satyam's cash and cash equivalent balances or its accounts receivables, it said.

Specifically, the order finds that PW India's “failure to properly execute third-party confirmation procedures resulted in the fraud at Satyam going undetected” for years. - PTI

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