Yes, the PwC/Satyam Story is Still Out There

We haven't shared any new bad news on PwC (read: Satyam) since, GASP, Monday but thanks to Re: The Auditors, who we'll point out, is on this story like stink on a monkey, we've got some thoughts:

1. It appears that PwC has a serious gag order on external communication re: Satyam. PwC has not held a single press conference in India since the scandal broke back in January. This is dubious for several reasons as you'd think there would some statement by P. Dubs but as we and others have noted, because no one seems to GAF here in the States, there's probably no rush to call attention to the pachyderm. The bigwigs figure that playing dumb will work in the West until someone starts making noise.

2. India's regulators and Satyam are playing hardball - Understandably, India is not cool with what happened and especially not cool with PW India's lack of admitting "yeah, our bad". "India's Enron" isn't a terribly flattering turn of events for a country that had been kicking ass and taking names lately so regulators and Satyam themselves is going on the offensive. The market regulator has announced that it will fund lawsuits on behalf of investors against whomever it has to. Plus, a big "Fuck you PwC" occurred in Forbes India where the Chairman of Satyam that took over after the scandal is quoted as saying "PwC messed up big time" noting that they didn't apply elementary auditing procedures.

3. When the lawsuits start, PwC will deny 'til they die - When it was reported that PwC could be banned from auditing in India it sent out "internal communication" to all employees (um, email) basically summing up the following:

• ICAI cannot ban the firm in India
• ICAI does not have power to act against firms
• Newspaper report on banning PW incorrect
• ICAI can take action only against partners
• Any action against partners a long process
• PwC was not contacted by ICAI high powered committee

So it's pretty clear that when PwC does decide to join this party, they'll be coming out swinging. This "communication" seems to be laying the ground work internally to rally the troops because this will surely get worse before it gets better and they're going to want some people in their corner.

Dreaming Of India: PwC and Satyam [Re: The Auditors]

Sphere: Related Content

PwC Probably Needs a Hug

As we mentioned this morning, the majority of PwC news has been extremely bad lately. And since it's Monday, we'll continue to kick a big multi-billion dollar professional services firm while they're down.

The Institute of Chartered Accountants of India ("ICAI"), the country's accounting regulator, may recommend the blacklisting of the firm. This awakening of the ICAI's inner-Joe McCarthy would mean that P. Dubs would be barred from performing audits in India.

Since the ICAI can only recommend the blacklist, P. Dubs would be able to appeal the action in court but since all of the Big 4 have hard-ons for doing business in India these days we can assume that this is another not-so-good development for the firm.

ICAI may push Price Waterhouse into blacklist zone [The Economic Times]

Sphere: Related Content

We've Been Out-Snarked

We here at 10-key Tramp consider ourselves to be a snarky bunch. It's just our nature, so we run with it. We'll poke fun, often in a mean-spirited fashion, at those who are deserving (SEC, KPMG, PCAOB, PwC, Maxine Waters [you're always #1 to us]).

Well, Dennis Howlett, at AccMan, just raised the bar with this awesome headline:

AccountancyAge, The Guardian: you’re a bunch of douche bags

And a little taste:

Here’s the bottom line on this mess. If PWC’s Indian ‘associates’ were involved with consulting arrangements then PWC should have recused itself from any audit activity. Let’s give them a break and assume they were free and clear. How the heck did the audit partners manage to miss $1 bn (roughly) cash that Satyam’s CEO admits went missing? The answer is a simple fraud I learned about the first six months I was training. Rule no.1: seek independent proof of cash balances. So if PWC…errr…Lovelock & Lewes…err who the heck? missed that then they were either monumentally stupid (ergo fiscally liable) or…I don’t know what.

First: Bravo, DH.

Now after you finish laughing, go ahead and read the whole post because he makes his case. The coverage in the UK has been taking PwC at its lame PR word re: Satyam. We didn't even report their coverage here because it basically looked like they did the copy and paste technique right out of the press release.

Meanwhile, the coverage in the states has been, at the very least, sympathetic, and the typical all that's fit to print mantra courtesy of the NYT.

So the point is, the coverage on this whole story is at its worst, pathetic, and at its best, typical. The repercussions of this fraud are serious and as DH points out, the accounting profession is in a serious downward spiral. The "best" firms continue to prove that they are totally complacent about their "responsibilities" due to their arrogant oligopolistic stranglehold on the profession.

Smaller and second-tier firms, meanwhile, could be shitting gold bricks for their clients (and some probably do) and no one would notice (unless, of course, they screw up; that's you, BDO).

Somehow we've channeled some Dennis's rage over here...

AccountancyAge, The Guardian: you’re a bunch of douche bags [AccMan]

Sphere: Related Content

We Know What You're Doing PwC and We Don't Like it

A little more salt on the wound known as Satyam for PwC, courtesy of Re: The Auditors (RTA). We posted yesterday that PwC really didn't audit Satyam, that it was a P. Dub associate firm, Lovelock & Lewes.

RTA makes the excellent point that the confusion about who is actually doing what is no accident:

The fact that no one except those closest to it understand the structure is not by default but by design. It is designed to accomplish just exactly what they are trying to accomplish now - to weasel out of responsibility and liability when something goes wrong. But it’s not unique to India or PwC. In some countries, New Zealand for example, there may be many firms operating under the KPMG New Zealand umbrella but they are no more aligned financially or strategically than Christchurch is with Tokyo.

So the firms' international entity structure is confusing precisely because they know that when the shit hits the fan, they can always jump behind corporate plausible deniability. This is exactly what happened in the BDO case (as RTA notes) via the "wedding planner" defense.

The firms have international presence, marketing themselves as international companies, yet hide behind an enigmatic entity structure to save their asses when they mess up.

Well played...One jury already bought it. P. Dubya better be saying their prayers that they're just as lucky...

PwC Global Board: “Risk And Quality Top Priorities” [Re: The Auditors] Sphere: Related Content

PwC India Admits to Not Auditing Satyam

Look, maybe this isn't what it seems. Maybe what Ramesh Rajan, chairman and CEO of PricewaterhouseCoopers, India meant when he told the Central Bureau of Investigation (CBI) that Lovelock & Lewes actually performed audit procedures on Satyam's balance sheet, he meant this:

See, we didn't audit them in this dimension. We totally audited them in a parallel universe where I'm still me and you're still you but Brad Pitt and Jennifer Aniston stay together and that manipulative Angelina doesn't ruin their beautiful perfect relationship. That's the dimension we all want to be in, isn't it?

Oh, and the Times of India also says that the audit fees were deposited into a Pricewaterhouse, Bangalore account but were later transferred to a Lovelock & Lewes account. And there's more:

Apart from Rajan, other senior partners of PW, from Delhi and Kolkata, were also summoned by the CBI last week. The partners denied any association with PW, Bangalore and said that Gopalakrishnan and Talluri [partners in charge of the engagement that are in prison] were not entitled to sign any balance sheet on behalf of PW. "So as it turns out, the auditors who are partners with PW, Bangalore, wrongly signed under the name of PW, and also outsourced the work to Lovelock & Lewes," said sources adding that investigations confirm that the entire auditing team at Satyam is from Lovelock & Lewes.

Good god. There's a lot to process so we'll have Dennis Howlett sum it up:

• PWC were the auditors of record but didn’t do the work
  
• PWC audit partners signed off
  
• PWC received fees and then paid to an associate firm
  
• [B]ut..they didn’t do the work
  
• And, by implication are not therefore to blame AND Lovelock and Lewes are a PWC network consulting firm

Got that? Some might say (and by that we mean pretty much everyone) this might not be so good for P. Dub. Stay tuned.

PWC: ‘We didn’t audit Satyam’ [AccMan]
We didn't audit Satyam: PwC [Times of India]

Sphere: Related Content

Additional Confirmation Why Getting Duped in India is Bad

Last month we told you about the two audit P. Dubya partners that are sitting in an Indian prison because they are accused of being complicit while Satyam just sorta made the numbers up.

You would figure that a couple of auditors spending a few months in prison would be able to make bail and end up on house arrest for their trial. Not so in India, friends.

The judge in the case, has denied bail for the two bean counters:

The court also felt that there is material evidence against the two auditors, who represent Price Waterhouse, for their involvement in the scam. The court also agreed that despite the availability of authenticated documents on various accounting issues in the company, the auditors chose to go by the documents provided by the Satyam management.

So, just in case you're keeping score at home, Allen Stanford may post bail in U.S. and two auditors in India (either crooked as the Satyam management or simply dimwitted, neither so flattering) are going to stay in the joint.

No bail for Satyam auditors: HC [dnaindia.com] Sphere: Related Content

PwC Global Chairman Gets Grilled Over Satyam

Dennis Nally got sweated by the Indian Corporate Affairs Minister over the fraud that was missed by P Dub at Satyam Computer Services.

Luckily for you, 10-key Tramp had a fly on the wall and we've got some of the juicier bits for you here:

Corporate Affairs Minister: Do you have any idea how serious this situation is?

Dennis Nally: I'd put it somewhere between cancer and heart attack.

CAM: Huh?

DN: Sorry, American joke.

CAM: What the hell was going on over there? Was anyone actually auditing anything? Why couldn't you find the fraud?

DN: I can't speak for the team specifically but I personally haven't audited anything since the early '90s. I'm not really sure about finding fraud. I don't think we have to do that.

CAM (with furrowed brow): What exactly do you do?

DN: Well I mostly fly around the world and put duct tape on stuff since Sammy D. quit

CAM (seriously getting annoyed): So can you tell us anything about this disaster?

DN: Couple dudes are in jail. I think one of them still wears his pocket protector every day.

CAM: Is there anything useful that you can tell us at all?

DN: It's customary to tip when you're in the United States. Waiters get really annoyed when foreigners stiff them.

CAM: Will someone get this guy out of here?

Khurshid asks PW for Satyam details [mydigitalfc.com] Sphere: Related Content

Deloitte Does Its Indian Practice a Favor, KPMG Not So Much

Citing conflict of interest, global accounting firm Deloitte has opted out of its assignment to restate Satyam s account, according to sources who spoke with UTVi's Arun Giri.
Satyam had awarded the work to two firms namely Deloitte and KPMG. Deloitte audits Mahindra and Mahindra accounts, and hence the conflict of interest.
KPMG will however continue with the restatement work, which is likely to take another four to six months.

Enjoy Radio Station India, you're flying solo.

Deloitte Opts Out of Satyam Assignment [CXOtoday.com] Sphere: Related Content

Scoping - 6.11.09

Satyam shares rise after profit - Legitimate profits? Skeptical....[BBC]

Bernanke e-mail claim in Merrill sale saga - "After the Fed initially refused to comply with the committee’s request for documents and e-mails in the matter, the committee took the extraordinary step of issuing a subpoena on Tuesday to obtain material from the Fed that concerned the deal." Extraordinary? God forbid the Fed actually have any transparency. [FT.com]

Regulators Ready New Rules for O.T.C. Derivatives - [DealBook]

California Has 50 Days To Live - [Clusterstock] Sphere: Related Content

In this Corner...BDO Seidman

It's more like a welterweight match but anyhoo...Opening statements were scheduled to be given in Banco Espirito v. BDO International in Miami today.

For those needing a refresher, BDO has been ordered to pay $521M to Banco Espirito after the Portuguese bank got duped out of $170M by the factoring (sketchy loans) company E.S. Bankest. New York Times coverage here and re: The Auditors here.

A jury found BDO guilty of negligence, and the firm was ordered to pay compensatory damages of $170M and $351M in punitive. The awards could potentially put BDO out on its ass.

The issue in this case is to decide if the "local" firm was acting as an agent of the international firm. If so found, the entire international network of BDO firms may be found liable for the judgment found against BDO.

Ouch.

This has big implications for all international firms, most currently for PwC who might find itself in a similar sitch with Satyam

Stay tuned.

Fla. jury to decide if BDO International liable [WEAR ABC 3] Sphere: Related Content

Word to the Wise: Don't Get Duped in India

The PwC/Satyam Computer Services fraud is becoming bigger news as more is learned about the case is reported on.

The partners on the engagement are currently in "judicial custody" for their alleged complicity in for not discovering a phantom $1 Billion on Satyam's books. Original NYT article here.

Sounds like paradise, "They sleep on the floor in a cell with other inmates, in temperatures that often exceed 100 degrees."

But one of the auditors is keeping it real, thank the Creator:

The other PricewaterhouseCoopers partner, Srinivas Talluri, a youthful 48-year-old with wire-rim glasses, is trying to maintain his professional mien behind bars. In the interview, his hair was neatly brushed, he carried a notepad and a plastic water bottle and his T-shirt was so smooth it seemed ironed...He recently offered to check the accounts at the prison’s canteen, just to keep his mind sharp.

No word from the Times if Mr. Talluir was also carrying his 10-key calculator.

The Tramp will be following this story closely as the repercussions of this fraud may fall hard on PwC...stay tuned.

2 Auditors Held in India Fault System [New York Times]
Sphere: Related Content