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An Indian employee of Satyam Computer Services Limited descends from a bus as he arrives for work in Hyderabad. NOAH SEELAM/AFP/Getty Images
In India, business is still recovering from the January revelation that Satyam Computer Services' (now former) Chairman Ramalinga Raju had been cooking the books at India's fourth-largest info tech company since 2000. Some $1 billion in declared revenue at the outsourcing firm turned out to be nonexistent. The auditor signing off on these fraudulent reports? PricewaterhouseCoopers, the biggest accounting firm in the world, with $28 billion in revenues globally and around $180 million in India.
Both Satyam (SAY) and the Indian auditing entity of PwC are still struggling to recover. Following Raju's confession, Pricewaterhouse resigned the account, and Satyam brought in KPMG and Deloitte to conduct a forensic investigation of the fraud. Thomas Mathew, the audit head of Pricewaterhouse India, stepped down on Jan. 27; two PwC partners who handled the Satyam audit have been sitting in Indian jail for two months; and on Mar. 17 the firm named two more auditors who were handling Satyam. They have not yet been formally charged, and PwC India's Executive Director Jairaj Purandare says they are innocent. "We ourselves are victims of the Satyam fraud," he adds.
While PwC says Indian clients have stood fast with the firm, it faces several class actions in U.S. courts and India's Institute of Chartered Accountants, the industry regulator, has demanded an explanation of Pricewaterhouse's role in the Satyam mess. Police in Hyderabad have alleged the firm's involvement, and O.P. Gupta, India's Corporate Affairs Minister, has said the government will take action against Pricewaterhouse if it is found liable. PwC CEO Samuel A. DiPiazza Jr., in an e-mail exchange with BusinessWeek, says the firm will be defending itself vigorously against legal claims, but all the publicity from the scandal certainly is not helpful. "Their name has been besmirched," says Nawshir Mirza, a former partner at Ernst & Young.
Now, as many Indian companies prepare to wrap up their fiscal year on Mar. 31, Pricewaterhouse faces a new worry. Corporate boards in India often make changes—such as choosing new auditors—after they close their books on the previous year. As that deadline approaches, Pricewaterhouse India has mounted an all-out effort to appear responsible. DiPiazza on Mar. 18 completed his second visit to India in the past three months, meeting with clients and officials and thrashing out measures with local partners to boost client confidence. For instance, PwC's international auditors will recheck the audits of the firm's Indian clients.
"We are aware our reputation has taken a knock, and nothing is more important than our reputation," DiPiazza says. "[So] the firm has taken a wide range of measures to demonstrate its commitment to quality." About 15 of these special auditors have been camped out in Mumbai since January. A new management team is in the Hyderabad office, which audited Satyam. And the firm has appointed a quality and risk leader for the entire Indian practice.
Pricewaterhouse rivals sense opportunity. Pricewaterhouse India, with a history going back 125 years, is the leader among the nation's Big Four, which includes Ernst & Young, KPMG, and Deloitte. The Indian market is small—just $700 million in billings last year—but until the downturn it was growing by 45% annually. Even this year, says DiPiazza, India is the fastest-growing firm to date in the global PwC network.
Some in the accounting industry say during the boom times the firms did not always vet new clients sufficiently. That's not the case with PwC, says DiPiazza. "We follow rigorous client acceptance procedures," he says.
This isn't the first time a Pricewaterhouse client in India has landed in trouble. When Global Trust Bank went bust in 2002, Lovelock & Lewes, a Pricewaterhouse affiliate, allegedly failed to detect the bank's mounting nonperforming assets. The firm denied any wrongdoing, but last month the first disciplinary committee of the Institute of Chartered Accountants found two members of Lovelock & Lewes guilty of professional misconduct in the case. A final ruling by a higher council at ICAI is still pending. Lovelock & Lewes says it has yet to receive a copy of the report, after which the concerned partner will examine and respond to the ICAI.
Satyam, the largest corporate fraud case in Indian history, makes Global Trust look like the minor leagues. That the New York Stock Exchange-listed Satyam was part of India's highest-profile business sector, IT outsourcing, earned global notoriety for the client and eroded Pricewaterhouse's image in India since news of the scandal broke. In the past two months, competitors say, evidence of unease among Pricewaterhouse India clients has emerged, and auditors at other firms are hoping to take advantage. For instance, Mumbai International Airport, a Pricewaterhouse client that is part of the Hyderabad-based GVK Group, says it plans to appoint a joint auditor along with Pricewaterhouse by the end of April. Although Purandare says some clients have had concerns, he says no one has left because of the scandal.
Lakshman covers India business for BusinessWeek.