India's Enron

[jstgtpaid]

The comments this CEO makes is as stunning as his blatant disregard for the law...

http://www.washingtonpost.com/wp-dyn/co ... eheadlines

Chairman and founder B. Ramalinga Raju took responsibility for the fraud and resigned in a letter he submitted to Satyam’s board. The letter said that the company lied about profit and revenue for several years, inflating revenue by 33 percent and profits more than tenfold between July and September of last year.

…”It was like riding a tiger, not knowing how to get off without being eaten,” he wrote in the letter. ” . . . I am now prepared to subject myself to the laws of the land and face consequences thereof.”

It is even more amazing that they won awards for entrepreneur of the year and best corporate governance from Ernst and Young.

[eddie]

When I was in college and took auditing as part of the accounting curriculum. I had the highest respect for Ernst and Young. Now, I would not even hire Ernst and Young firm as janitors.

[jstgtpaid]

Sorry if the following details are fuzzy... Hopefully I get my point thru...

I seem to recall that a US auditing company went claws up around the time of the Enron and subsequent big company failures. The auditing company perished because there was collusion between the failing company and the auditors.

The solution to this was the creation of Sarbanes Oxley. The result being more auditors and more rules.

The part that strikes me is that adding more auditors would not prevent the problems that occurred. I think the main part of SoX that prevents future corruption is the explicit statements that make CFO's and other exec's personally liable for putting out false information.

Anyway... I am surprised there has been so little coverage of this in the media. How could this have occurred without some assistance from E&Y?

[eddie]

Having worked in accounting and dealt with auditors, generally you have auditors who are usually all the newbies doing the detail work and just going through the motions to fill in the blanks. To be a real auditor, you have to have some horse-sense, some experience, and a bit of the detective in you. Most newbies do not want to rock the boat since at least back when that type of job was so hard to get such a prestigious position. I would also say that a lot of the accounting profession has become the scapegoat of questionable management. That is one reason I got out of it. You get tired of being made the fall guy for someone else's mistakes. For some reason good "Auditors" do not have a long life expectancy and that especially pertains to pension fund auditors. The accounting industry are no angel's either. I remember taking the cpa exam and the proctors switched out the exams because the one's for that particular session were hijacked. The persons involved were arrested and prosecuted.

[jstgtpaid]

Having worked in accounting and dealt with auditors, generally you have auditors who are usually all the newbies doing the detail work and just going through the motions to fill in the blanks.

I agree completely with your assessment of auditors. Typically it is the principle consultants(hope I have that term right) that review the findings that have the experience. The problem with that scenario is the principle consultants are typically focused on their own revenue (more billable hours means more money.)

I would also say that a lot of the accounting profession has become the scapegoat of questionable management. That is one reason I got out of it. You get tired of being made the fall guy for someone else's mistakes.

I agree partially here as well. Although it is not always the case, I have seen friction between managers and accountants. It is truly a shame because both groups can be extremely hard workers. Though I must say that the accountants have impressed me the most with their work ethic.

In any case, with managers if the figures don't come out as they like it is often the tendency to blame the accountants. It is a sad truth. However, if upper management is familiar with accounting they can rebuff some of that. Naturally both sides have to admit they make mistakes and work together to get things straight. But I have seen where the blame for poor profitability or other mistakes is laid at the accountants feet.

The accounting industry are no angel's either. I remember taking the cpa exam and the proctors switched out the exams because the one's for that particular session were hijacked. The persons involved were arrested and prosecuted.

Yes, the problem is with the persons not the professions.

[eddie]

I know another profession that likes to pad hours. Generally when doing an audit, in addition to having inventories done as well as many other inspections of business records, a random sample is taken of transactions to be examined. If there is the possibility of irregularity, more transactions, business records, or other such evidence is examined. If an auditor is familiar with a particular industry or company/entity, he or she may request and inspect additional evidence where financial events may not have been recorded properly according to GAAP (generally accepted accounting principles). Auditors are suppose to be independent in both appearance and in reality. So they will investigate as much as is needed. Those are reasons for more hours. A doctor will order more tests if he or she suspects problems. Auditors you could say are financial record doctors. Eventually if there is enough data, auditors will express their opinion by attesting to the fairness of financial statements of an entity in accordance with GAAP. They never say the statements are 100% accurate or that Management is doing a good job. I have had experienced auditors tell me that they have seen financial statements of companies that were according to Hoyle (again not accounting terminology), but the felt management was less than beneficial to the company to put it nicely. You will never see such statements in financial reports though. Sometimes auditors will put exceptions in accounting practices they have found during the audit in their report and that is not usually a good sign. I used to love to read audited financial statements, especially of several years in a row. They can be funnier than the comics sometimes if you read between the lines. I try not to do that anymore though. It can get depressing.