The Satyam fraud revelations have sent shockwaves through the corporate world, and here a few reactions from the experts:
Kamla Bhatt has a detailed post about the scandal, starting with the hints of trouble with the World Bank ban, and all the questions this fraud has raised about auditors, governance and regulation.
What will happen to Satyam’s employees? Contracts are bound to be canceled or not renewed and projects are likely to put on hold. This is an extreme case. Chances are that the impact of the current crisis will unfold gradually and could be managed and contained. But in the short run there is bound to be some kind of impact. There are bound to be layoffs if projects are canceled.
Basab Pradhan, former Head of worldwide Sales in Infosys, thinks there is much hidden in the Satyam fraud – was this all done only to inflate earnings, was Raju the only family member involved?
I think Raju is doing a Madoff – taking the fall for the rest of the family. It is impossible to cook the books of a large company for this long without half a dozen people being complicit. That includes their auditors by the way – PriceWaterhouseCoopers – who must be held to account.
T T Ram Mohan, IIM Ahmedabad Professor, calls for more regulation on all large institutions in the IT Sector.
One of the regulatory lessons being drawn from the financial sector crisis is that large institutions need to be regulated, whether they are banks or non-banks. I think the basic principle may have to be applied to all large firms, irrespective of the whether they are in the financial sector or not.
Kaps writes a fictional story on restoring confidence for its associates [linked by Patrix]:
1. Satyam will launch Satyam-PWC Centre of Creative Accounting & Management (SCAM)
This Centre will be headed by Srinivas Vadlamani. Satyam Associates can enrol in this SCAM and develop their creative accounting skills. SCAM will impart best practises by benchmarking with other world class firms like Enron and Worldcom.
Ramesh Srivats is already planning and imagining a trial for B Ramalinga Raju:
PP : Hmm, interesting. And does that justify cooking the books?
RR : Well, I did cook them in such a way that they were deli.co.us. And people were ready to Digg in. As long as my books are popular, who cares if some critics like SEBI object. In fact, the Satyam books were bestsellers in the fiction section of Amazon. You could call it Long Tale Economics.
Comments
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RJ
Jan 9th, 2009 at 9:54 am | #
It’ll be really interesting to see what comes out of all this, and whether or not PwC had any active part to play in this saga. In the US, auditors got too comfy with the likes of Enron and Worldcom and what happened in 2001 is well known.
There is in intrinsic flaw in the way public auditing works. Auditors are required to maintain independence with the client on whose books they opine. At the same time, they are dependent on them for revenue. Some audit firms in the US (e.g., Arthur Andersen) fell prey to the inability to effectively balance this tenuous relationship. Post-2001, auditor independence was a key driving aspect of tougher securities legislation in the US; however, with the shrinking economy, this has again been compromised. India needs to overhaul its securities and internal control laws, and incorporate auditor independence clauses, among others, to combat “agressive accounting” practices (to borrow an Enron era phrase).