The Wall Street Journal ran a story on January 14 containing more disturbing details of the truth about Satyam, the misnamed Indian company that is being brought down by its own fraudulent behavior. In an article headlined “Satyam Probe Scrutinizes CFO, Audit Committee,” the Journal reported that the company’s audit committee has not been meeting SEC standards.
As a company whose ADRs are traded on US stock exchanges, the company is required to meet both Indian and American governance standards. One of the latter, according to the Journal, is to have qualified experts on its audit committee. Satyam’s has not for some time at least.
Worse, this fact was serious enough for GovernanceMetrics International to warn its clients as far back as December 2006 -- more than two years before the scandal broke – that Satyam’s governance wasn’t up to snuff.
So, how could an accounting firm like PriceWaterhouse miss this crucial, tell-tale detail?
All those who placed their faith in the company’s claims and PriceWterhouse’s stamp of approval must now regret not having got a second opinion. But why should that be necessary? Audit committees and outside auditors should must do their jobs and do them right and be held fully accountable when they fail to do so, or the capital markets will operate under a cloud of suspicion for a long time to come.