Is an audit worth anything?

Posted on

Prem Sikka has this in the Guardian today:

Satyam is India's fourth largest software company. It complied with the latest accounting standards and boasted audit committees, independent directors and a global accounting firm as its auditor.

The resignation letter of Satyam's chairman explained that he inflated cash and bank balances by about $1bn, understated liabilities by $253m and improved profits by accruing non-existent interest and overstating debtors. For the quarter to September, the company inflated its profits by 97%. It published an operating margin of 24% against an actual of 3%. Its profit should have been $12.5m instead of $136m. Such frauds can't easily be perpetrated by one person.

Satyam's accounts received a clean bill of health from the Indian arm of auditors PricewaterhouseCoopers (PwC). The firm received a fee of $1.92m from Satyam, including $325,000 for consultancy.

The case is made: the current model of auditing has failed.

Now we need to move on to something else.