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April 30, 2008

External board to review former Satyam audit firm Price Waterhouse

By Nicholas Moody

Former Satyam audit firm Price Waterhouse is to set up an independent review board to provide external guidance on the firm’s audit quality to reassure clients as Indian authorities continue investigating the firm’s former audit partners.

The Satyam Computer Services scandal unfolded in January when financial irregularities totalling about $1.44 billion were discovered at the Indian software company. Price Waterhouse, an Indian member firm of PricewaterhouseCoopers (PwC), was Satyam’s statutory auditor at the time the irregularities allegedly took place. Satyam has subsequently ditched Price Waterhouse as its auditor.

The review board will be made up of four members from outside the PwC network and a senior partner from another PwC firm.

Price Waterhouse’s Hyderabad office has been placed under new management and the two key Satyam audit partners were suspended from duty in January.

Price Waterhouse chief relationship partner S Gopalakrishnan and engagement leader Srinivas Taluri have been detained by Indian police in connection to the Satyam fraud since January. They are understood to be in the custody of the Indian Central Bureau of Investigation until 17 March. Price Waterhouse chairman Ramesh Rajan said while he was confident in the overall quality of the firm’s services and its staff, the problems at Satyam have created a difficult environment.

As part of the review process, the firm has appointed a new head of quality assurance and risk management, who has been seconded from another PwC firm. In addition, Sharmila Karve is to take over as the new leader of its national assurance practice.

The scandal has also led the Institute of Chartered Accountants of India (ICAI) to consider changes to the audit profession including the use of joint auditors, auditor rotation and a review of links between multinational accounting firms and their local affiliates. A five member ICAI panel has been convened to discuss the changes and was due to report back on 10 March. No further details had emerged at the time this publication went to print.

Nicholas Moody

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