Recently, the profession is hit by the significant fraud case involving India's IT Giant- Satyam. Satyam admitted that he has committed fraud, part of the action includes: inflating cash and bank balances by $1 billion dollar!!!
The professions are wondering how could the auditor miss out such a huge misrepresentation in cash and bank balance. In general, audit procederes include:
- agreeing cash and bank balance per Trial Balance amount to Bank Statement
- most importantly, obtaining bank confirmation directly from the client's banker
The confirmations and bank statements provide a certain level of audit comfort zone, given that it's an independent party confirmation, rather than client-generated evidence.
Nevertheless, Pricewaterhouse Coopers, who are the auditor for Satyam Computer Services Ltd, claims that the audits were conducted in accordance with applicable auditing standards and were properly supported by audit evidence. Apparently, the fraud cannot be easily discovered by obtaining bank confirmation. If not, it wuld have been discovered, given that Pricewaterhouse Coopers has been the auditor of Satyam for several years.
We shall wait for further news / reports then.