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The allure of the Big Four - Views on News from Equitymaster
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  • Jan 15, 2009

    The allure of the Big Four

    Satyam's likely new auditors
    Ever since the biggest fraud in corporate India (Satyam) was unraveled, the saga has been occupying the front pages of leading business dailies. The company's chairman, MD, CFO, board of directors and the auditors (Price Waterhouse) have all come under fire. Given that the auditors have been severely criticised for their inability to detect this fraud of epic proportions it was not surprising then that Price Waterhouse had to be replaced with a new team of auditors. As per a leading business daily, KPMG and Deloitte, both of whom are part of the Big Four in the accounting and audit world, have been appointed as joint auditors of Satyam.

    After the Enron scandal in the US which saw the demise of the then reputed Arthur Andersen and the latest Satyam fiasco, the reputation of these big accounting firms have come under the scanner and therefore the question to be asked is whether it makes sense for the new set of auditors to be appointed from this circle. Infact, there is already a buzz doing the rounds in the accounting fraternity that there is an urgent need to appoint a high ranking Indian accounting firm as joint auditor for the beleaguered software company. Is this a case of jumping from the frying pan into the fire? One will have to wait and watch.

    CEOs in the US are being fired
    Job losses in the US have taken a quantum leap amidst the global financial crisis. But the thing to note is that no one, not even CEOs have been spared. Infact, the current financial crisis has turned out to be a nightmare for the CEO community, many of them having seen their jobs getting axed due to poor financial results, plunging stock prices and increasing criticism from shareholders. This is not really surprising as the actions of CEOs are minutely scrutinized especially during bad times such as these when the pressure on them to tide over the crisis is high.

    But firing CEOs at the drop of a hat may actually turn out to be counterproductive. This is because the new person who assumes office is expected to reverse the fortunes of the company in a short span of time, which may not be sufficient enough to grasp the dynamics of the business. That has, however, not stopped the corporates in the US from showing the door to CEOs across industries. In the last eight days, six CEOs have already departed. As per reports in a leading business daily, 61 companies in the S&P-500 changed CEOs as compared to 56 a year earlier. Leo Tolstoy, the famous Russian novelist had quoted in one of his works, "All happy families resemble one another, each unhappy family is unhappy in its own way". In the corporate world atleast, it looks like the unhappy families resemble one another.

    India's oil imports more than double...
    We are not talking of crude here but edible oil. India is the world's biggest buyer of vegetable oils after China and the decline in palm oil prices coupled with the rise in demand led to an increase in imports in December. As per Bloomberg, edible oil imports in the first two months of the season that began in November almost doubled to 1.24 m tonnes. Vegetable oil prices had slid 53% in the second half of 2008, after reaching a record in March, as production exceeded demand. Besides the low prices, anticipation of an import duty by the Indian government on palm oil imports (20% duty has already been imposed on crude soybean oil imports) could also have contributed to the surge in the same.

    India relies on imports to meet almost half its edible oil demand with palm oil accounting for almost 90% of India's edible oil imports. This only highlights India's growing dependence on oil imports be it crude or edible oil. As regards the former, India currently imports around 70% of the crude oil that it consumes.



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