Satyam’s Audit Unreliable, Price Waterhouse Says

By Saikat Chatterjee and Harichandan Arakali

Jan. 14 (Bloomberg) -- PricewaterhouseCoopers LLP’s Indian unit said the audit reports of Satyam Computer Services Ltd. can no longer be relied on, after the software exporter’s founder admitted $1 billion of false accounting.

Chairman Ramalinga Raju’s Jan. 7 admission that Satyam’s finances had been inaccurate for “several years” rendered the audits invalid, Price Waterhouse said in a letter to directors sent to the Bombay Stock Exchange today. The auditor relied on financial statements from Satyam to prepare the report, it said.

Satyam’s government-appointed board named KPMG and Deloitte Touche Tohmatsu today to restate India’s fourth-largest software exporter’s accounts. The auditors need to quickly assess the state of Satyam’s finances to clear the way for a bailout to save the Hyderabad-based company’s 53,000 jobs.

“For any financial institution to extend loans to Satyam to solve its liquidity problems, the bank has to at least know what it’s getting into,” said Apurva Shah, head of research at Mumbai-based brokerage Prabhudas Lilladher Pvt. “Any solution has to start with knowing the extent of the problem, at Satyam practically everything is doubtful.”

Chairman Raju said on Jan. 7 that he’d fabricated $1 billion of cash and assets, sparking an 83 percent plunge in Satyam’s stock that wiped out $2.2 billion of investor wealth. The government said on Jan. 12 it may provide funds to bail out Satyam, after new director Deepak Parekh said its working capital requires “immediate attention.” Satyam would have to restate earnings for several years, he said.

Satyam declined 4.8 percent to 29.55 rupees at 1:50 p.m. in Mumbai today.

Fraud Inquiry

The government yesterday directed the Serious Fraud Investigation Office to start an inquiry into Raju’s claims, joining the state police, capital markets regulator, and accounting body in investigating the false accounts.

The Institute of Chartered Accountants of India yesterday set up a six-member panel to examine Satyam and Price Waterhouse. The auditor has said it complied with accounting rules.

“We placed reliance on management controls over financial reporting, and the information and explanations provided by the management, as also the verbal and written representatives made to us during the course of our audits,” PwC’s unit said today. In view of Raju’s letter “our audit reports and opinions in relation to the financial statements for the Audit Period should no longer be relied upon.”

Raju, 54, was arrested on Jan. 9, two days after telling Satyam’s board he had falsified accounts for several years. The chairman, his brother Rama, and Chief Financial Officer V. Srinivas are remanded in judicial custody until Jan. 23.

To contact the reporter on this story: Saikat Chatterjee in New Delhi at schatterjee4@bloomberg.net; Harichandan Arakali in Bangalore at harakali@bloomberg.net.

Last Updated: January 14, 2009 03:30 EST