Satyam Case Study

In early 2009 the chairman of Satyam Computer Services admitted publicly to a fraud taking place in the company. Satyam reported in the financial statements billions of dollars in profits and cash assets that never existed. The public auditor’s responsible for auditing the financial statements of Satyam Computer Services at the time was PW India, an affiliate of Pricewaterhouse Coopers. The Securities and Exchange Commission determined that Satyam was able to commit the financial statement fraud due to the negligence of the audit team. The audit team tasked with auditing the records of Satyam failed to confirm cash balances in bank accounts which were grossly over represented. Later it was determined that the more than one billion dollars Satyam claimed to have was actually no more than sixty-six million.
During the audits of Satyam Computer Services, the audit team at PW India never sought confirmations for the cash balances that management asserted which is a clear violation of auditing standards. The SEC, during the investigation, determined that many audit teams in PW India accepted cash confirmations directly from the management of their clients and almost never questioned the reliability of the confirmations received. It was also revealed that sometimes the banks would send statements directly to the auditors even though they weren’t directed to do so. Even though the bank statements showed different balances then those given to the auditors by management, the audit team never questioned the differences in amount.
Procedures, for reviewing audits, were put into place to assure that all audits are completed with the highest degree of professional care. The Satyam audit team was warned by a partner from a different Pricewaterhouse Coopers firm that their cash confirmation procedures were deficient, but nothing was done to correct the deficiency. Due to this deficiency the Satyam fraud was not uncovered. As a result Satyam Computer Services was fined 10