It is certain if INR 5000+ crore were missing for so many years auditors own a responsibility. Your analysis is absolutely right, only those two conditions can be true. In scenario (a) auditors were not negligent, rather they were criminally involved. I donot see why an auditor will not confirm cash balances. In case of cash with bank, a reconciliation is a must. In case of cash in hand, physical verification and that too on last financial day and randomly is very important. Unless PwC thought that a sum of INR 3400 crore was not material.
In scenario (b), I don't think auditors can be implicated. They are not supposed to handle client's day to day business. I don't think any company obtains a prior permission of its auditors before they sign cheques.
I personally believe, PwC should have adequate records in its own office to prove how such a great descrepency can exist. Currently, Raju's own statements provide adequate and probable cause to authorities to act against PwC. The onus to prove that PwC is not involved rests on them. I see adequate grounds for ICAI to shoot a show cause notice. It can be a big black blot on the profession. If it waits for years of investigation to complete, it is going to lose its respect.
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