This article was originally published on GoingConcern.com October 7, 2009.
It’s been a while since an update on the PwC/Satyam fraud for re: The Auditors. Rest assured, it’s all still a big problem for PwC. Their partners are still in jail but the wheels of Indian justice turn slowly. I did receive reports that India’s accounting regulatory body has already found the partners guilty and the Indian government will soon sanction the PwC partners and PwC. PwC Global Chairman Dennis Nally, reportedly, will be in India next week to work the political angles to make sure the firm is not kicked out. Their new “cluster” structure implies a global organization but, still, in their minds, protects them from shared liability. Nevertheless, Dennis is going because the firm’s global future is clearly at stake due to the Satyam debacle.
Getting banned from India is a pernicious possibility – one PwC faced before in Russia and Japan. It’s one other audit firms may face. Take the Akai case. EY’s settlement is now reported as ~$400 million. Where does that money come from? Certainly the Hong Kong practice alone can’t pay it. Recall… EY took the bold move about a year and a half ago to create a semi-unified half-global network. Fortunately for those that did band together, Asia is not included.
I’ve been ruminating about these global engagements and the new organizational structures. I’ve been thinking about the communication approaches these firms use when a crisis hits. What was the reaction of the PwC partners last December when Satyam’s CEO confessed? PwC has its hands all over many of Satyam’s largest clients, either as their auditor or a trusted consulting advisor. When they did discuss the case was it conferring, commiserating, or colluding? Were they concerned about the impact of a Satyam failure, given their clients were highly dependent on Satyam?
It matters not whether you buy my hypothesis that PwC partners were steering outsourcing business to Satyam and/or vouching for Satyam to their clients, perhaps in return for rupees. A Satyam implosion presents real risk to PwC and some of their clients.
Satyam’s clients are all over the world. Many of these jurisdictions have privacy and confidentially laws that prohibit information sending/sharing data across borders. How do professional services firms, organized in loose confederations of separate legal entities get around this issue in order to protect their clients and, perhaps, in some cases shield themselves and their firms from liability?
I asked some trusted friends and sources – professionals that work with global engagements in the audit firms and have knowledge of these restrictions. Every one of them said I was making an invalid assumption: Audit firm partners don’t give a rat’s ass.
Instead, they reminded me, audit partners are sometimes arrogant, small minded, insular, stove-piped, managed loosely, provincial, non-passport carrying, self-serving, self-interested, smug, bad tippers who don’t care about anyone or anything not directly related to their annual draw. I was giving them too much credit, they told me. Partners bide their time, take their measly million or two out each year in cash and hope they don’t end up like one these guys. I saw that attitude at PwC regarding Japan. But I keep refusing to believe it.
Is it possible I care more about the future of the audit firms and their clients than many of their partners do?