Sebi issues show cause to Price Waterhouse

This is the first time that the market regulator has sent such a notice to the statutory auditor of a listed entity, questioning it on the procedure followed while carrying out its duties

Ashish Rukhaiyar
MUMBAI
Feb 27, 2009

CAPITAL markets regulator Sebi has sent a show cause notice to audit firm Price Waterhouse, asking them to clarify on the processes and standards followed while auditing the books of Satyam Computers. This could be the first time that Sebi has sent out such a notice to the statutory auditor of a listed entity questioning it on the procedures it followed while carrying out its duties.

When contacted, Price Waterhouse confirmed the development, but didn’t elaborate. “Price Waterhouse confirms receipt of a show cause notice from the Securities and Exchange Board of India as part of its investigation into Satyam Computer Services. The notice is under examination. As this is an ongoing investigation at a preliminary stage, it is inappropriate to comment further. We continue to cooperate fully with the ongoing investigations into Satyam,” said the audit firm.

Price Waterhouse is being probed for its alleged role in the Satyam Computer financial fraud after former chairman B Ramalinga Raju, on January 7, admitted to falsifying the books of the software company for over seven years.

According to persons familiar with the development, Price Waterhouse has submitted documents and computer files pertaining to Satyam Computer, spread over the past seven years, running into over 60,000 pages of documents. This apart, the audit firm is also conducting its own investigation into the matter to find out how a fraud of such magnitude went unnoticed for so many years, the sources added.

Also, this is not the first time that Price Waterhouse has been issued a notice in the Satyam fraud. Last month, the Institute of Chartered Accountants of India, the apex body of accountants, served a show-cause notice to Price Waterhouse for allegedly not following standard auditing procedures.

ICAI officials said that the institute has taken a serious view of the alleged role of Price Waterhouse, due to the impact it has on the auditing profession. But, it is likely that the audit firm could get away lightly, as accountancy firms limit the extent of their liability in their contracts with clients. Typically, auditors restrict the quantum of their liability to the extent of the fees that they receive from the company. ICAI can only recommend blacklisting the audit firm.