New questions were raised about the relationship between Satyam, the Indian outsourcer, and PricewaterhouseCoopers (PwC) yesterday as the first statements collected from senior executives by the police emerged.

According to a leaked account of a statement given by Vadlamani Srinivas, Satyam's former chief financial officer said that he had been left out of conversations between the company and its auditor regarding nearly $1 billion in fixed deposits on Satyam's books, which turned out not to exist.

He said that PwC, which had audited the accounts of India's fourth-largest outsourcer since 2000, and B.Ramalinga Raju, its chairman, had communicated directly about the fictitious cash. If true, the arrangement would have been highly unusual, experts said.

The Institute of Chartered Accountants of India, which has the power to debar the firm from India indefinitely, has issued a notice to PwC's local auditing unit, Price Waterhouse, demanding that it explain Satyam's accounts within 21 days.

Chief among the questions being asked by investigators and investors is how PwC failed to check on about $1billion, which Satyam's accounts showed as being on deposit but which Mr Raju revealed to be entirely “fictitious”.

Deepak Parekh, the chairman of HDFC, India's second-largest private sector bank, who is one of the three new board members appointed at Satyam by the Indian Government, said yesterday that the company would appoint a new accounting firm within 48 hours to restate its financial position and publish its third-quarter results.

The new directors also include an IT expert and a former regulator.

The swiftness of their appointment by the Indian Government underscored the level of concern in Delhi over damage done to India's image by the scandal.

The initial challenge facing the new directors will be to find money to pay this month's wages to the company's employees.

It has been suggested that the Government may be forced to step in with a financial lifeline to allow the company to continue to operate.

PwC may face criminal action for allowing India's largest corporate fraud to proceed under its nose.

The firm has been named in the First Information Report filed by the Indian police, which marks the first step in a criminal investigation.

It also emerged that the disgraced IT tycoon, who said last week that he intended “to subject myself to the laws of the land” for orchestrating India's largest corporate fraud, has assembled a team of 25 lawyers to defend him.

Mr Raju and his brother Rama Raju have been charged with criminal conspiracy and forgery and are being held in jail in Hyderabad, along with Mr Srinivas.

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