Is PwC about to be debarred in India?

The two PwC partners that were responsible for the Satyam audit have confessed their involvement in the fraud.  S. Gopala Krishnan and Srinivas Talluri, were arrested on January 24, 2009, and remanded to judicial custody until February 6, on charges of fraud and criminal conspiracy.  While in custody and during an intense interrogation, the two India based partners, revealed .

that Ramalinga Raju, the founder and former chairman of Satyam Computer Services, held meetings with top Satyam managers on a regular basis.  During these meetings, Raju plotted the manipulation of the corporate books through the inflation of cash balances.  These two partners have been auditing Satyam’s books since 2000-01.  They face maximum sentences of life imprisonment. 

Although Krishnan and Talluri have been suspended by PwC, it is doubtful that the partnership will be able to avoid further punishment simply by casting their partners aside.  India’s regulatory body for chartered accountants, the Institute of Chartered Accountants of India, is investigating PwC’s possible involvement in the fraud at Satyam.  Given the confessions by Krishnan and Talluri, the investigation should be quick – but probably not painless.

It is hard to imagine a more damaging case against PwC then having two of their senior partners admit their complicity in the largest fraud in India’s history.  If there were ever a case where debarment is appropriate, this is it.  But this isn’t PwC’s only worry.  Obviously, civil suits are going to have a devastating impact on the remaining PwC partners’ deep pockets.  The $64 million dollar question is whether a debarment in India and the resulting civil suits will bring down one of the “final four” on a world-wide basis.  Stay tuned.

Tags: accounting malpractice, debarment, PwC, Satyam