Price Waterhouse to defend its role as auditor

NEW DELHI: Price Waterhouse will defend its role as the auditor of the disgraced Satyam Computer Services , citing the 1986 verdict of the Bombay High Court that said an auditor should not be held responsible for tracking down ingenious and carefully-laid fraud schemes in a company.

Lawyers privy to the development , who requested anonymity, said as per the contract between the auditor and Satyam, the onus of providing accurate information was on the company.

���This is a standard across the audit industry,��� one of them told ET.

The scope of an auditor���s work is different from that of a detective or of a law enforcement agency, making it difficult to detect orchestrated fraud even if all audit practices are religiously followed, he said.

The 1986 high court verdict, which came in a case between audit firm AF Ferguson & Company and Tri-Sure India Ltd, said auditors must not be made liable for not tracking out ingenious and carefully-laid schemes of fraud when there is nothing to arouse their suspicion and when these frauds are perpetrated by the tried servants of the company and are undetected for years by the directors.



���There is a clear distinction between the work of an auditor and the investigation of a detective. The auditor���s mind is unbiased unlike that of an investigator , who approaches work with the presumption that fraud has taken place. The auditor does a sample checking of invoices and documents after assessing how effective is the internal risk controls in the firm. Based on that, he makes an inference about the authenticity of other similar documents.

This sampling is just a drop in the ocean of invoices and documents that the company produces. Verifying the authenticity of that material is outside the scope of statutory audit,��� explained a senior auditor with a big accounting firm, who asked not to be named.

���When the auditor stumbles upon something suspicious, he carries out more checks and additional verification, which still fall short of an investigation. That is because an auditor���s job is to give a true and fair view of the company���s financial health and not an ���accurate��� picture of the same,��� added the official.

While certifying the financial statements of a company, auditors state that the statements give a ���true and fair��� picture of the state of affairs in the company as per the information and explanations given to them.