Satyam gives Price Waterhouse the boot, bags fresh orders
February, 24th 2009
Technology outsourcer Satyam Computer Services showed global audit firm PricewaterhouseCoopers (PwC) the door on Saturday by recommending to the government the ouster of its Indian affiliate Price Waterhouse (PW), even as the IT major said it has bagged fresh orders and was "back to its winning ways."
According to a Satyam spokesperson, the Ministry of Corporate Affairs has accepted the recommendation and on being notified, PW, which had been the statutory auditor of Satyam for over eight years, has tendered its resignation.
Satyam is also searching for new auditors, the spokesperson said.
On being asked if the government was planning any action against PW, which was the statutory auditor for Satyam, Corporate Affairs Minister Prem Chand Gupta said that the governing body of chartered accountants and auditors viz. Institute of Chartered Accountants of India (ICAI) regulated audit firms in India and it was for the ICAI to take action.
Ever since Satyam founder Ramalinga Raju, resigned last month after admitting to have fabricated the company's account books to the tune of $1.5 billion, PW has been passing through a difficult phase with the ICAI launching an investigation to look into PW's role in the accounting fraud.
As investigations proceeded, PW partners and auditors S. Gopalakrishnan and Talluri Srinivas were arrested by the police on grounds of colluding with the Satyam promoters and charged with cheating, forgery, criminal breach of trust and criminal conspiracy. The Sixth Additional Chief Metropolitan Magistrate in Hyderabad has posted the hearing on the bail petitions filed by the two suspended PW partners to February 24.
Reserve Bank of India (RBI) governor D. Subbarao also said the central bank would review its decision to revoke the suspension on PW, which had been barred from auditing banks in 2003 after the Global Trust Bank scam. The ban was lifted in 2007 after PW had appealed saying they had suffered for four years and requested that the suspension be revoked.
The audit firm, in a statement issued on Sunday, said it was keen to understand the full extent of what transpired at Satyam. "PW continues to cooperate with all ongoing investigation," a PW statement said.
Meanwhile, Satyam's government-appointed board said it had bagged fresh purchase orders and work extensions to the tune of $250 million since January 7, including a single order of $50 million.
"The recent successes include a single order of $50 million, and multiple orders from across industry verticals, technologies and geographies, reflecting an all-round positive trend. More than half of this value comes from new orders, which reinforces the confidence that customers have been sharing with us in our discussions," CEO A.S. Murty said.
The company was "back to its winning ways," he added.
The latest development comes amid rumors that the board would seek regulatory approvals this week after which it would announce the process of inviting bids for a strategic stake sale.
Last week, the board had approved the process for inviting a strategic investor.
News of fresh orders is likely to boost the morale of investors as it comes at a time when several of Satyam's customers including US-based State Farm Automobile Insurance, Australian telecom major Telstra, insurance major Assurant, the world's largest credit card network Visa Inc., and investment bank Merrill Lynch were rumored to have severed their technology outsourcing contract with the company.
Shares of Satyam closed 1.73 percent down at Rs.45.45 at the Bombay Stock Exchange on Friday.
PricewaterhouseCoopers International Ltd (PwC) is one of the Big Four audit firms in the world, the other three being KPMG, Ernst & Young and Deloitte. Originally, there were Big Five global accounting firms, including Arthur Andersen. However, Arthur Andersen, which was the auditor for Enron, was dissolved and acquired by PwC in 2002.
PwC's Indian affiliate, called Price Waterhouse (PW) has offices in nine Indian cities and is a separate legal entity. It audits over 140 companies, including big names, such as Maruti Suzuki, United Breweries, United Spirits, GMR Infra, Glenmark Pharma, Piramal Healthcare and Marico.
Blue-chip companies in India and overseas typically appoint the Big Four audit firms, despite the hefty fees charged by them, as the signature of the firms on companies' balance sheets gives credibility to the account statements.
However, the accounting fraud in Satyam has put the reputation of an entire profession on the line and has raised questions about the credibility of the auditors.