The Hindu Business Line : Satyam: Truth in trickles

So, the muck is gradually beginning to filter out of Satyam. The ex-CFO, Mr Srinivas Vadlamani is, as they say, singing in custody and spelling out murky details. We appear set for a long, agonising period ahead as the scandal unravels, piece by painful piece, and the true extent of the rot perpetrated by Mr Ramalinga Raju is revealed in full glory.

Mr Vadlamani claims he had no knowledge of the inflow or outflow of cash; he used to “get the finalised accounts from the department and just signed”. He also says that he endorsed on whatever was audited by Price Waterhouse.

Now, is that not exactly the reverse of how it should actually be? The auditor endorses what the company and CFO sign on and the CFO is supposed to be the one authorising cash movements in and out of the company. Is what Mr Vadlamani saying believable? For all one knows, he could be pulling a fast one in his attempt to deflect blame.

Story of compromises

It is becoming clear though that the entire finance function was compromised and that includes the statutory auditors, Price Waterhouse; the internal auditors who report to the board of directors and even the company secretary, who is the compliance officer under the law.

While Price Waterhouse has received flak enough to pile up as high as Mt Everest, and rightfully so too, the internal auditors and the company secretary have been spared. It is impossible for an internal auditor who does his job correctly to have not noticed the shenanigans of Mr Raju or the fact that Mr Vadlamani was not in apparent control of the finance function.

Similarly, the company secretary, in this case Mr G. Jayaraman, who was also, ironically, Global Head - Corporate Governance, ought to have been aware of the goings-on. Why did he not blow the whistle that he ideally should have done in his position? The Institute of Company Secretaries of India is understood to have begun its probe by asking for a report from Mr Jayaraman. Meanwhile, Price Waterhouse has maintained a tight lip in the last few days except for making the usual noises about having conducted the audit “in accordance with applicable auditing standards and …. supported by appropriate audit evidence”. Now, either the auditing standards prescribed by the Institute of Chartered Accountants of India (ICAI) are so ineffective that they cannot detect even a basic mischief of pilferage of cash and inflation of revenues or Price Waterhouse is lying.

Even a casual look at the accounting and auditing standards prescribed by the ICAI or an informal conversation with a chartered accountant who knows his job will tell you that the standards are as rigorous as they can be, as are the normal practices usually followed in an audit. So, Price Waterhouse is not speaking the whole truth here.

Silence hurts more

Also, by maintaining silence, the firm does not seem to be following the right strategy. Price Waterhouse should have gone public by now with the details of what happened in the audit function, whether it was a lapse and, if so, how it occurred. That would have at least helped salvage the situation a bit for the beleaguered firm. In the absence of authentic information, all the speculation in the media and in professional circles over its role is certainly not doing the firm any good.

The two partners of the firm on the ICAI Central Council, Mr S. Gopalakrishnan and Mr Harinderjit Singh, should also resign from the Council immediately upholding best practices. The latter had attended the Central Council meeting on Monday that discussed the Satyam issue. It is impossible to see how the two gentlemen can avoid a conflict of interest being members of the highest policymaking body of the ICAI when the latter is investigating their firm.

The President of the ICAI, Mr Ved Prakash Jain, should ask them to resign from the Central Council at least till such time that the investigations are over. Corporate governance applies as much to preachers as to the preached.