Based On the article about Price Waterhouse Coopers (PWC) and its association with the worst accounting fraud in India related to its audit of Satyam Computer Services

Satyam Computer Services Ltd, a technology company based in India that provides software development, technical support and outsourcing services to several Fortune 500 companies, agreed to pay $125 million to settle U.S. shareholder litigation based on a fraud admitted to by their CEO, Ramalinga Raju on January 7, 2009.

The country was rocked by possibly its biggest corporate fraud on Wednesday as B. Ramalinga Raju, chairman of Satyam Computer Services, resigned after confessing that the companys profits and cash reserves had been doctored for several years. This threatens the image of Indias iconic software industry that fuels aspirations for jobs and prosperity among millions of middle-class people.

The revenue figures inflated to keep share prices high and package a shaky business as rosy, revealed a hole well above Rs 7,000 crore and reminded many of the Enron case in the US that led to the conviction of key executives.

PricewaterhouseCoopers India firm was the auditor of Satyam since 2001, shortly after its listing on the New York Stock Exchange. After the fraud was revealed, two of PwCs audit partners joined company executives in jail for nearly a year before being released on bail. They are currently facing charges in India.

Media all over the world started calling the case Indias Enron. Some called it Mini-Madoff. The fraud was really quite simple and is more like Parmalat with its false bank account balance confirmations than the off-balance sheet sophistication of Enron or the pure Ponzi-ness of Madoff.

The litigation that was settled clears the way for the official merger of Satyam with Tech Mahindra. Several years of financials were finally restated recentlyand Tech Mahindra, Im sure would like to put this episode to bed and move on. The settlement, however, does not cover either ex-CEO Raju, other former Satyam executives, or PwC. Satyam is now threatening a new suit against PwC to recover some of the payment to shareholders:

The Economic Times of India, February 18, 2011: Close on the heels of a settlement of a class action law suit in the US for $125 million, Mahindra Satyam is planning to sue the former Satyam management and the company's erstwhile auditor PriceWaterhouse for a possible monetary damages claim. The company is looking at moving the courts both in India and the US. This will help Mahindra Satyam bring down its financial liability arising out of the settlement.

"We are looking at the possibility of suing Ramalinga Raju and PwC as they were party to the scam that resulted in security fraud and litigation. PwC was not only negligent but also colluded in it as it did not do its job for so many quarters," said Vineet Nayyar, Chairman, Mahindra Satyam.

PwC has been trying to do damage control since the scandal broke sometimes somewhat successfully, but most often dismally.

From the India Times: PwC global CEO Samuel DiPiazza, Jr., along with some senior worldwide partners is currently in India to assess the situation, after widespread reports that Price Waterhouses alleged overlooking of Satyam accounts could impact the audit firms reputation and business in India. It is learnt that the global partners are actively considering restructuring the India unit.

Persons close to the development also said that a damage control exercise is likely as global partners are also concerned about the likely impact of the Satyam case on their existing clients. Already, KPMG and Deloitte, archrivals of PwC, have more auditing clients than PwC, especially with Indian companies that have presence in US. The reshuffle could likely include shifting current leaders to new responsibilities, said the persons who asked not to be named.

Since the scandal started in January 2009 with Rajus confession, PwC global leaders have visited numerous times, claimed to be victims themselves, made several appeals to the Indian media including trying to squelch my reports, set up an internal advisory board with foreign partners and reorganizedmore than once.

Developing a strategy to put a positive or at least neutral spin on the situation was not easy. The choices go from bad to worse:

The dilemma for the PwC Global senior leadership crisis team has been that the burning question, How could Price Waterhouse India let this happen at Satyam? has four possible answers:

a) Price Waterhouse India audit technique and quality standards demonstrate the epitome of incompetence and professional negligence,

b) Price Waterhouse India partners colluded with Satyam management to commit the fraud,

c) Price Waterhouse India partners were duped,

d) Some combination of all three.

None of the answers will win PricewaterhouseCoopers International Limited a prize.

A PCAOB inspection report for the Price Waterhouse Indian audit firm, based on a review performed in March of 2008, is still pending.

Is it possible PwC is afraid of the findings? Could it be that they have successfully delayed the release of this inspection report in their quest to first quash any and all lawsuits that may be able to take advantage of the findings?

PwC has a pending motion to dismiss the Satyam case against them filed in a New York Court. A recent Supreme Court decision regarding f-cubed cases may also impact the kinds of plaintiffs who can file claims in US courts when the company, any of its investors and the exchange where transactions occurred reside outside of the US. In addition, the Satyam class action may be curtailed or dismissed altogether based on a claim of forum non conveniens.

The ongoing delay of the issuance inspection report is a no-win for the PCAOB and a travesty of regulation for investors. Either the PCAOB saw problems with PwC audits of Satyam in early 2008 or prior and were unable to prevent or mitigate the fraud that was finally admitted by the Satyam CEO in January of 2009 or the PCAOB inspectors missed red flags that PwC was either complicit, incompetent, or both.

None of these hypotheses is positive.

A thorough, timely India inspection report, with evidence that either or both the PCAOB or PwC were fighting against the fraud perpetrated by Satyam and alleged to have been enabled by Price Waterhouse partners would have given us all hope. The continued delay of the PCAOB India report instead implies regulatory impotence.

The lawsuits in New York against PwC include the international firm as a defendant. It was estimated at the time that claims against PwC alone could reach more than $1 billion.

If former client Satyam sues them too, PwC will have to wait a little while longer to mothball their damage control strategies.

Create an argument supporting that the requirements of SOX have reduced corporate fraudulent activity due to the requirements placed on public accounting firms, thereby providing greater assurances to public users of financial information. Provide support for your argument. Evaluate the issues related to the audit of Satyam Computer Services Limited, indicating whether or not PWC followed auditing standards in rendering its audit opinion of the company. Provide support for your rationale. Assess whether PWC relied too heavily on the established system of internal controls and neglected to perform sufficient testing of transactions using effective computer-aided audit tools. Provide a rationale for your recommendation. Analyze whether PWC neglected to sufficiently test transactions or whether it could have relied on the audit of Internal Control to limited testing in those areas, indicating any consequences related to their decision. Provide support for your conclusion. Support your position for whether or not PWC met its responsibility of Due Care based on the requirements placed on auditors by PCAOB. Suggest improvements needed to external auditing firms and the accounting profession to reduce the number of audit scandals and fraudulent activity within publically traded companies. Provide support for your suggestions.