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25 June 2024

Fraud-hit Satyam names new auditors as probe widens

Media and police outside the office of PricewaterhouseCoopers (PWC), the auditors of Satyam Computer Services. (REUTERS)

By Reuters
India's fraud-hit Satyam Computer Services Ltd named new auditors on Wednesday, a first step by the government-appointed board as the company battles for survival after unveiling the country's biggest corporate scandal.

KPMG and Deloitte will replace Satyam's previous auditor, the Indian unit of PricewaterhouseCoopers (PWC), which said its opinions on the outsourcing firm's financial statements may be unreliable, given the revelations of fraud announced by Satyam's founder and chairman Ramalinga Raju.

India's prime minister met key ministers on Tuesday to discuss Satyam, and company affairs minister PC Gupta later said  "different possibilities" were being examined.

A government bailout is key to ensuring the company has enough cash in the near term and to restoring flagging investor confidence, analysts said, noting massive job losses from a Satyam collapse could hurt the government heading into national elections expected in the next few months.

Local media have estimated the government would have to pump up to 20 billion rupees ($410,000) into the company to keep it afloat and reassure its nervous clients and employees.  Official probes into the scandal have widened after the government ordered the Serious Fraud Investigations Office to open an investigation into the more than $1 billion fraud.

Raju, his brother and the company's former chief financial officer have been charged and are in jail in the southern Indian city of Hyderabad, Satyam's headquarters.

Raju, 54, quit last week after confessing the company's profits had been falsely inflated for years.  The scandal has hit Indian stocks and the rupee currency, as investors worried over the damage to foreign investment in Asia's third-largest economy and the once-booming outsourcing sector, a magnet for thousands of young job seekers.

"External services spending in the US is already slowing as banks tighten their belts," Jacob Jegher, a senior analyst at consultancy Celent said in a note.

"Financial services firms who are considering outsourcing in foreign countries will now have an additional reason to hesitate. The risk of scandal and fraud is the last nail in the coffin."

Shares in Satyam, which counts Nestle and General Electric among its clients, fell 4 per cent on Wednesday. Its market value has dived to about $410 million from more than $7 billion six months ago.

"We placed reliance on management controls over financial reporting, and the information and explanations provided by the management ... during the course of our audits," Price Waterhouse said in a January 13 letter to Satyam released on Wednesday.

Due to Raju's confession, the audit firm said its opinions on the financial statements "may be rendered inaccurate and unreliable." It audited Satyam from the quarter ended June 2000 to the quarter ended September 2008.

The scandal has also dented hopes of thousands of graduates who said they had been promised jobs by the company, a pioneer in India's software sector. Satyam has a 53,000-strong workforce.

The Reserve Bank of India has sought details of banks' exposures to Satyam and other firms run by the founding family.

But a lawyer for India's securities watchdog (SEBI) said investigators were already having trouble accessing documents due to the number of agencies involved. The Securities and Exchange Board of India and at least one state agency are also conducting probes into the scandal.

"It is difficult. We have to get police permission to see each and every document," Pradyumna Kumar Reddy told CNN-IBN news channel. "Each agency has its own way of examining the issue. Unfortunately, our probe is being delayed."

Satyam's new board has said it needs to restate its accounts and appoint senior people as soon as possible to get back on track.  ($1=48.9 rupees)