 INDIA’S SATYAM SCANDAL: EVIDENCE THE TOO LARGE TO INDICT MINDSET OF ACCOUNTING REGULATORS IS A GLOBAL PHENOMENONKalpana Pai and Thomas D. Tolleson Review of Business and Finance Studies, 2015, vol. 6, issue 2, 35-43 Abstract: This paper examines the capture of government regulators using the case of Satyam Computer Services Ltd., one of India’s largest software and services companies, which disclosed a $1.47 billion fraud on its balance sheet on January 7, 2009. The firm, which traded on the New York and Bombay Stock Exchanges, was required to file financial reports with the SEC. Price Waterhouse of India, the local member of PricewaterhouseCoopers (PWC), served as its auditor. After news of the scandal hit the airwaves, Price Waterhouse of India issued a press release and stated that its audit was conducted in accordance with applicable auditing standards and was supported by sufficient audit evidence. Because Satyam shares were quoted on Wall Street, SEC rules prohibited auditors from having business relations with their clients. U.S. regulators failed to take action against PWC. Is this lack of enforcement related to PWC’s size and the impact that the failure of a Big 4 firm would have on the global financial marketplace? We question whether government regulators have been captured by the key market players in the auditing services market. One outcome of this capture is moral hazard, which implies that the Big 4 accounting firms, or their local affiliates, may place less emphasis on quality audits. Such an approach to the audit function places the selfinterests of the audit firm above the public interest. We also question whether foreign companies that are listed on US Stock Exchanges fall under the purview of US Laws and if these companies and their auditors face the same regulatory scrutiny as publicly-traded US Corporations. In addition, the paper provides suggestions to protect the public interest while citing lessons learned from this scandal. Keywords: Auditing; Capture Theory; Accounting Regulation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ibf:rbfstu:v:6:y:2015:i:2:p:35-43 Access Statistics for this article Review of Business and Finance Studies is currently edited by Terrance Jalbert More articles in Review of Business and Finance Studies from The Institute for Business and Finance Research |
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