Can we prevent another Satyam?

19 January 2009

The preventive measures now considered by the government and SEBI are not enough to prevent another Satyam. The ICAI should regularly review and rate all auditors. Listed companies should have full-time independent directors, who should not be given other professional assignments or granted stock options and commissions and be accountable to the regulators. By Shivshanker Verma

It is nearly a month since Satyam delivered its first shock, the aborted deal to acquire the two Maytas companies. But, there are no clear initiatives from the government or the market regulator to improve corporate governance standards and prevent frauds.

Of course, the magnitude of the fraud revealed subsequently is unprecedented and investigations are still going on. Even so, when the shortcomings of the current system are quite evident, do they need to wait longer to plug the loopholes?

Most of the measures suggested so far and said to be under the consideration of the government and SEBI, involve tightening the regulatory and supervisory structure from the top. But, as repeatedly proven, stricter regulatory frameworks do not prevent frauds. Instead, they add to the bureaucratic controls and stifle genuine business activity.

What are required are sincere and effective measures to improve governance, auditing and financial reporting standards at the ground level.

Peer review and rating of auditors

This is not a new idea, but unfortunately it has not gained acceptance. Auditors are professionals, regulated by an independent professional body like the Institute of Chartered Accountants of India (ICAI).