In early 2009 the president of Satyam Computer Services admitted publically to a fraud taking topographic point in the company. Satyam reported in the fiscal statements one million millions of dollars in net incomes and hard currency assets that ne’er existed. The public auditor’s responsible for scrutinizing the fiscal statements of Satyam Computer Services at the clip was PW India. an affiliate of Pricewaterhouse Coopers. The Securities and Exchange Commission determined that Satyam was able to perpetrate the fiscal statement fraud due to the carelessness of the audit squad.
The audit squad tasked with scrutinizing the records of Satyam failed to corroborate hard currency balances in bank histories which were grossly over represented. Later it was determined that the more than one billion dollars Satyam claimed to hold was really no more than 66 million. During the audits of Satyam Computer Services. the audit squad at PW India ne’er sought verifications for the hard currency balances that direction asserted which is a clear misdemeanor of scrutinizing criterions.
The SEC. during the probe. determined that many audit squads in PW India accepted hard currency verifications straight from the direction of their clients and about ne’er questioned the dependability of the verifications received. It was besides revealed that sometimes the Bankss would direct statements straight to the hearers even though they weren’t directed to make so. Even though the bank statements showed different balances so those given to the hearers by direction. the audit squad ne’er questioned the differences in sum.
Procedures. for reexamining audits. were put into topographic point to guarantee that all audits are completed with the highest grade of professional attention. The Satyam audit squad was warned by a spouse from a different Pricewaterhouse Coopers house that their hard currency verification processs were lacking. but nil was done to rectify the lack. Due to this lack the Satyam fraud was non exposed. As a consequence Satyam Computer Services was fined 10 million dollars by the SEC for fraud and PW India was fined 7. million dollars by the SEC and PCAOB.
The critical issue in this instance is that PWC India did non move in conformity with PCAOB or AICPA criterions and codifications of professional behavior. The critical factors are as follows: * The hearers did non move with due professional attention. * The hearers did non suitably assess the hazards of stuff misstatements. * The audit squad did non exert professional incredulity. * The hearers did non move with unity or in the best involvement of the users of the fiscal statements.
Due professional attention. as required by the PCAOB. necessitate the hearers to keep professional cognition and accomplishment at the degree required to guarantee that clients receive competent professional service and to move in conformity with professional criterions. This is the most critical portion of the audit procedure to do certain that the audit will be handled with. finally. the users of the fiscal statements best involvement in head. PWC India. in their audit of Satyam. had wholly disregarded this cardinal demand of hearers.
By trusting on the verifications given to them by direction. the hearers did non supply the users of the fiscal statements with the accomplishment and professionalism they are trusted with. As a consequence. they wholly missed an obvious fraud taking topographic point at Satyam and if the executive of Satyam hadn’t admitted to the fraud PWC India’s controls would hold ne’er caught the exaggeration. Another relevant issue here is that the audit squad did non suitably assess the hazards of stuff misstatements which resulted in the fraud.
Before an audit. in the planning phase. the audit squad should hold identified histories. minutess. and disclosures that could impact the fiscal statements significantly if they were materially misstated. The hearers at PWC India did non decently place that the hazard that the averments of direction about the hard currency histories would ensue in a high hazard of material misstatement. Cash histories irrespective of industry should necessitate a particular attending during an audit.
The professional judgement of the hearers was missing in the audit of Satyam’s hard currency balances. When measuring the hazards of certain histories the hearers should hold asked themselves whether there is a hazard of fraud. whether there is subjectiveness in mensurating the fiscal information. and whether there is any unusual balances in the histories. The reply to these inquiries should hold all been yes in this instance and there is no ground why they shouldn’t have decently confirmed the hard currency balances.
One of the many demands of an hearer is to exert professional incredulity. The hearer must take what’s given to him with a ‘grain of salt’ and besides inquiry and corroborate the being. happening. and truth of history balances. In the audit of Satyam. the hearers acted with no professional incredulity whatsoever. If the hearers are non making their due diligence. the audit hazard will lift due to the addition in sensing hazard. Management took advantage of the fact that the hearers processs of observing stuff misstatements were missing.
This article’s relevancy to the scrutinizing profession is tremendous. From here. hearers should larn to non take anything for granted and to ever oppugn what is put in forepart of you. unless it is from a wholly nonsubjective beginning. The hearers at PWC India did non follow the basic demands of an audit battle which resulted in a major fraud. Even when the Bankss sent history verifications straight to the hearers. despite non being requested to make so. the hearers still did non oppugn the disagreements.
The gross carelessness in this instance should be an illustration to all hearers ; make non take anything for granted. The quality control reappraisal besides failed in this instance. Hearers need to mind the advice of the reappraisal squad. Here. the audit squad ignored the recommendations of the reappraisal squad to corroborate hard currency balances with the Bankss. Quality control reappraisals are really important to an battle and hearers should non take recommendations without due consideration.