ASatyam : Auditors or Spin doctors?

This is what I was left wondering after reading an article published in Business Today, circa March 2008 that I accidentally stumbled upon while clearing my book shelf recently. This was about an interview with Samuel A.DiPiazza Jr , World Wide CEO of Price Water House Coopers (PwC), a full 9 months before Satyam blew up in their face . The CEO in his characteristic style , answered to what could be termed as prophetic questions, on what would unfold later, and I am revisiting that conversation in this blogpiece just to put that perspective in hindsight. Makes very interesting reading & Here’s how it goes (ad verbatim)

Q:Is there still too much that firms like PWC do in terms of services to one client – you’re doing auditing , you are doing tax advisory and you’re also doing consulting for them. Wouldn’t there be some sort of conflict that gets built into this kind of model?
A: I simply don’t accept that. There’ve been considerable number of academic studies that have shown that where we have engaged with a client in a broader set of activities, the likelihood of audit failure is much lower because we have deeper understanding of the company (sic). Another piece of that is when we audit, we don’t just use accounts. Our auditing process requires tax people, it requires actuaries, it requires technology people – all different type of skills.If you were to take one of these audit firms & say ‘you only do audits’, we would have a very difficult time attracting those kinds of talents and the quality of audits go down
Q. Earlier you’d mentioned that businesses would continue to make mistakes. No one has issues with mistakes that happen due to bad strategy. But what happened in Japan with one of your clients in 2006 was cheating and that affected PwC very badly. So, have companies actually learnt and are they keen on being clean?
A. I think the vast, vast majority of companies have always had a commitment to being clean, to do the right thing, before Enron, and after Enron. But I also believe that you operate in a world where if people want to break the rules, if they feel personal pressure or greed, they’ll try to break the rules. And you need processes and activities to keep that from happening. And whenever we feel that one of our people has done something wrong—not just made a mistake, but something morally illegal—we take very harsh action, and our situation in Japan shows that. We, effectively, shut that firm down. It cost us hundreds of millions of dollars of business, but we didn’t blink.
Q. But do you think it’s possible for auditors to prevent fraud?
A. Actually, I think auditors prevent fraud every day because we are the eyes and ears of industry. We come to the table with an independent point of view. We test, question, and we challenge. CEOs encourage us to do this. So, there’s no question in my mind that the entire audit profession has, over the years, prevented fraud. We find often, during the course of a year, people pushing that envelope. And most of the time it’s not visible, it’s not public because it’s fixed before it ever becomes a factor. People are fired, and it’s very quiet and that’s the job we have.
Q. In some sense, you’re not just the eyes and ears of the industry, but also the conscience of the client.
A. Yes, and boards… you asked about change. Today, CEOs and supervisory boards are deeply into what we do. So, it’s not “we and they”, we’re in this with the boards and with the management. Reputational damage done through financial mis-statement is huge and no one wants their name connected to that. No board member, no supervisory board member and no CEO. Sometimes, the pressures they put create that incentive in their company and they have to understand that they can only push so far before people might go too far.

In an interview earlier in 2003 in the same Magazine, DiPiazza while making a case against Auditors being consultants has echoed “Actually, you do not need a consulting project to corrupt you. The audit fee is large enough to corrupt you if you aren't a person of integrity.”

He is the author of the book ‘Building Public trust: The future of corporate reporting’ , which for all you know may be being read & reviewed by Ramalinga Raju in his downtown prison in Hyderabad.