In April 2011, the SEC charged Satyam Computer Services Ltd., an India based-company, with fraudulently overstating the company’s revenue, income, and cash balances by more than $1 billion over five years. The SEC also sanctioned the company’s auditors for conducting deficient audits that allowed the fraud to go undetected for years. The auditors were five India-based affiliates of PricewaterhouseCoopers (PwC). The SEC stated that “PW India’s failure to properly execute third-party confirmation procedures resulted in the fraud at Satyam going undetected for years.”¹⁵

Required

a. Go to www.sec.gov and research the Satyam fraud scandal. Briefly summarize the fraud, such as the time period over which it took place, who was involved, and how it was conducted.

b. Go to www.pcaobus.org and search for PCAOB Release No. 105-2011-002. Summarize the audit deficiencies noted by the PCAOB in the audit of the cash and receivables balances. Also summarize how the auditors violated Auditing Standard No. 3 Audit Documentation. (Note that the Auditing Standards have since been reorganized. The documentation standard is now AS 1215.) What penalties/ punishment was levied on the PwC affiliate firms?