Calculation error

New Delhi, Jan. 8: Analysts have put bankers along with auditors in the dock for the big fudge at Satyam. Yesterday, Satyam chief B. Ramalinga Raju confessed to manipulating the company’s books.

“Many companies create fictitious bank statements to show excess cash flows. But these can be verified directly from the bank,” Deepankar Sanwalka, head of forensic accounting practice at KPMG, told The Telegraph.

According to accounting regulator ICAI, auditors can get a confirmation of a company’s balances on writing to the bank manager.

“However, statutory auditors usually rely on the cash details provided by internal auditors, which are certified by the management,” said U.B. Bhargava, former general manager of Punjab National Bank.

An internal auditor reports to management, while a statutory auditor such as PricewaterhouseCoopers reports to shareholders.

According to a audit consultant, there have even been instances abroad of companies intercepting bank’s confirmation messages to external auditors.

“The RBI needs to investigate the role of banks that provided loans to the software company,” said Bhargava.

In the Global Trust Bank scandal, where the bank fudged accounts to shore up valuations, the RBI had intervened and imposed curbs on PwC.

However, auditors feel ICAI’s actions may be limited to individual auditors who have approved Satyam’s accounts and not the firm.

ICAI president Ved Jain today said, “We have written to the disciplinary committee of the ICAI. If found guilty, chartered accountants involved in Satyam’s auditing can be banned for life.”

Jain said he needed to collect all facts and information before taking any action.

Analysts said company balance sheets can be fudged in many ways: during invoicing of assets, issuing fictitious bank statements, tampering with the profit and loss statement and manipulation of cheques.

Meticulous scanning by auditors and bankers is required to detect these small changes in account details, they said.

A balance sheet is a summary of the company's assets, liabilities and ownership equity over a period of time.

According to Raju’s letter on Wednesday to Satyam's board, the September 30 balance sheet had fudged entries of an aggregate value of Rs 7,136 crore.