Fraud-hit Satyam names new auditors

Fraud-hit Satyam names new auditors

KPMG and Deloitte to take charge as auditors

Devidutta Tripathy

Wednesday, January 14, 2009

HYDERABAD, INDIA: Fraud-hit Satyam Computer Services Ltd named two audit firms on Wednesday to restate its results after being caught in the country's biggest corporate scandal, threatening its survival.

KPMG and Deloitte will restate results prepared by Satyam's previous auditor, the Indian unit of PricewaterhouseCoopers (PWC), which said its opinions on the outsourcing firm's financial statements may be unreliable, given the revelations of fraud announced by Satyam's founder and chairman Ramalinga Raju.

"We placed reliance on management controls over financial reporting, and the information and explanations provided by the management...," Price Waterhouse said in a Jan. 13 letter to Satyam released on Wednesday.

Due to Raju's confession, PWC said its opinions on the financial statements "may be rendered inaccurate and unreliable." It audited Satyam from the quarter ended June 2000 to the quarter ended Sept 2008.

One of Satyam's new government-appointed board members, C. Achutan, told Indian media KPMG and Deloitte would restate results as soon as possible, though a formal appointment of auditors needs the consent of shareholders. No timeframe was given for a shareholder meeting.

A government bailout is seen as key to ensuring the company has enough cash in the short term and to restoring flagging investor confidence, analysts said, noting massive job losses from a Satyam collapse could hurt the government heading into national elections expected by May.

Satyam has a 53,000-strong workforce and counts Nestle and General Electric among its clients.

Local media have estimated the government would have to pump up to 20 billion rupees ($410 million) into the company to keep it afloat and reassure its nervous clients and employees.

India's prime minister met key ministers on Tuesday to discuss Satyam, and corporate affairs minister PC Gupta later said "different possibilities" were being examined.

Probe Widens

Official probes into the scandal have widened after the government ordered the Serious Fraud Investigations Office to open an investigation into the more than $1 billion fraud.

Raju, his brother and the company's former chief financial officer have been charged and are in jail in the southern Indian city of Hyderabad, where Satyam's headquarters is located.

Raju, 54, quit last week after confessing the company's profits had been falsely inflated for years.

The scandal has hit Indian stocks and the rupee as investors worry over the damage to foreign investment in Asia's third-largest economy and the once-booming outsourcing sector, a magnet for thousands of young job seekers.

"External services spending in the U.S. is already slowing as banks tighten their belts," Jacob Jegher, a senior analyst at consultancy Celent said in a note.

"Financial services firms who are considering outsourcing in foreign countries will now have an additional reason to hesitate. The risk of scandal and fraud is the last nail in the coffin."

Shares in Satyam whose client list also includes Qantas Airways and Emirates Bank International, fell 4 percent on Wednesday. Its market value has dived to about $410 million from more than $7 billion six months ago.

The scandal has dented hopes of thousands of graduates who said they had been promised jobs by the company, a pioneer in India's software sector.

The Reserve Bank of India has sought details of banks' exposures to Satyam and other firms run by the founding family.

But a lawyer for India's securities watchdog (SEBI) said investigators were having trouble accessing documents due to the number of agencies involved.

The Securities and Exchange Board of India and at least one state agency are also conducting probes into the scandal.

"It is difficult. We have to get police permission to see each and every document," Pradyumna Kumar Reddy told CNN-IBN news channel. "Each agency has its own way of examining the issue. Unfortunately, our probe is being delayed."

©Reuters

Would you like to Comment on this Article?

Name
Email
Comment Here
Code Verification

Read Comments

Vanaja said on 1/15/2009 1:47:07 PM:
If Satyam will be bailed out by Government, how about 1000s of Garment unit and otherIndusutry segments. Is Government supporting everybody? Can anybody answer Is Government setting up the precedent to follow for all future industry problems?

to Vanaja