Two PricewaterhouseCoopers auditors were aware that accounts of Satyam, the IT outsourcer at the centre of Indias biggest corporate fraud, were being misstated but signed them off in return for an exorbitant audit fee, Indian investigators have alleged.
The Central Bureau of Investigation (CBI), which looks into Indias most serious and complex crimes, has filed documents in a court in Hyderabad that outline what it alleges are the outlines of a scandal that has become known as Indias Enron.
Shares in Satyam plummeted in January when B. Ramalinga Raju, its founder, admitted fabricating cash and other nonexistent assets worth about 1 billion over at least seven years.
The CBI alleges that Mr Raju, two of his brothers and four other Satyam executives committed the fraud by forging more than 7,000 fake invoices and dozens of bogus bank statements to inflate Satyams earnings.
The auditors, S. Gopala Krishnan and Srinivas Talluri, who have been suspended from PriceWaterhouse, the Indian audit arm of PricewaterhouseCoopers (PwC), received certificates of deposit from Satyams banks that were in great variance with the figures provided by the companys management but signed off the fudged accounts anyway, the CBI claimed.
The bureau alleged that PriceWaterhouse received several times the market rate for the work that it carried out for Satyam.
Mr Krishnan and Mr Talluri are being held in prison in Hyderabad, along with the other accused.
A spokesman for PwC said: We are yet to engage with the partners on the contents of the charge sheet, and therefore we are not able to comment at this stage.
Since January furious investors have been demanding to know how PwC missed a systematic fraud that has severely dented confidence in Indias regulatory regimes.
The CBIs case may also have an impact on the potentially enormous legal liabilities to which Satyam is open, including a class-action lawsuit from US investors.
On April 13, Tech Mahindra, the IT group part-owned by BT, agreed to buy Satyam despite the full nature of the scandal remaining a mystery. The sale, conducted by auction and rushed through by the Indian Government, valued Satyam at about 670 million and will transform Tech Mahindra, in which BT holds a 31 per cent stake, into an outsourcing group employing about 75,000 people.