Monday, January 12, 2009

Satyam Fraud Case- Implication of Bank Confirmation / Bank Certificate

Subsequent to our previous post of " Saytam Fraud Case- Misrepresentation of Cash" , our further examination reveals that the misrepresentation pertains to misrepresentation of the Company's Fixed Deposit. The CEO, Raju, is personally in charge of the Fixed Deposit! An improper segregation of duties ( improper corporate governance) has given the CEO committed the fraud.

Investigation into the fraud case is on-going, and media widely reported that the investors are questioning what audit procedures have the Stayam auditor, Pricewaterhouse Coopers performed to ensure the existence of the asset.

The implication of Satyam Fraud Case highlited the importance of obtaining independent bank confirmation from the bank directly. No audit engagement should be closed without obtaining the bank confirmation as an audit evidence. Bank confirmation replies will also reflect any contingent claims by the bank towards the entity. As such, the auditors can ensure the completeness of the disclosure of Company's contingent liabilities.

In short, an independent bank confirmation / cash certificate is an important audit evidence, as evident in Satyam's fraud case.


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