Foreign auditors have turned skittish after Satyam, says Shankar Sharma

An Indian auditor is likely to be more circumspect, only if a company is unable to fix a problem would they take the extreme step of resigning

Why did you tweet that you will not invest in a company audited by one of the big four auditors?

The market does not pay a premium valuation for a company being audited by a foreign auditor. On the other hand, if they resign it becomes a huge stigma for the company. So there is zero upside and 50 per cent downside.

Doesn't a resignation signal problems in a company's books?

Investors don't know if something is wrong with the books of accounts of those companies, because the auditors haven't given the proper reasons. But as a shareholder, for no fault of mine, I could lose 50 per cent of the value of my share overnight because an auditor chooses to resign without offering proper reasons. Why should I take that added risk? 

Moreover, what is the problem in having Indian auditors? It is not as if foreign auditors have covered themselves in glory. Check their track records both in India and in the US. It is pointless to get into companies audited by foreign auditors. It is a huge new risk that has cropped up. And there is no way to deal with it. Once the resignation happens, the company gets tainted. Whether this is for right or wrong reasons, nobody knows.

What would an Indian auditor have done?

In my view, an Indian auditor is likely to be more circumspect. I'm assuming that they would tell the company to fix the problem. Only if a company is unable to fix a problem would they take the extreme step of resigning. Foreign auditors have become very skittish and scared, thanks to Satyam, and that is not necessarily a good thing.