directly threatens to engulf the IT sector in India at this time of economic downturn and undermine India’s global image as one of the most promising economic stories in the new millennium. While the Ketan Parekh fraud in the late 1990s brought about the collapse of several co-operative banks and the largest mutual fund in India (Unit Trust of India US-64 ),which was located right in the middle of the Indian financial system, the Satyam fraud clearly brings out the lacunae in the systems, practices and methods of auditing and accounting in India and situates itself right at the heart of India’s booming IT industry.
A chilling similarity between Satyam and Parekh lies not just in the scale of the frauds but also the incidence of criminal conduct by the top management of the various companies involved and the conflicting interests between the various groups of accountants, bankers, auditors and top management. An inescapable factor is the clearly questionable auditing standards at large and the professional ethics generally of the auditors who have supposedly audited the company’s books for at least the last four to five years.
The fundamental question that needs to be asked of the audit and accounting firm, Price Waterhouse in this case, is - why was there such a critical absence of, or failure to enforce, control systems and/or audits in accordance with the firm’s best practices for such a prolonged period of time? Clearly it is the job of the auditor not only to ensure that companies operate with prudent levels of risk, but also, that their books are subject to an effective and accurate scrutiny regime.
The fact that the Satyam fraud went on undetected and uncorrected for years and without any external audit and accounting mechanism picking it up raises serious questions as to the actual degree of implementation and enforcement of such practices as part of a credible, effective and sound auditing system. Also, given that the audit firm in question was also involved in the affairs of Global Trust Bank and DSQ not long ago, it may be relevant to ask what corrective actions were taken by the firm to mitigate or prevent opportunities for fraud, reckless mismanagement, and conflicts of interest raising the potential for such behaviour within its own organisational set-up.
24 Jan 2009, 1915 hrs IST, Saptarshi Ghosh,
The Satyam fraud is stunningly alarming not only because it is the biggest accountingand auditing fraud in India till date but also because it
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