Six years after the country’s most high-profile multi-crore accounting fraud came to light, the founder of Satyam Computer Services, B. Ramalinga Raju, and his brother were sentenced by a special CBI court for falsifying the company’s books. A few others, including former auditors of the company, were also convicted on charges of criminal conspiracy and cheating. At the same time, it has been revealed that a forensic report prepared for India’s Serious Fraud Investigation Office or SFIO shows over a third of India’s top 500 companies or those in the top 100 are “managing” their accounts. The report’s findings indicate that this cooking of books is more likely in the case of companies where the promoters have a dominant holding and the subsidiaries of MNCs too show a similar trend.
This is indeed worrying. Over the last few years, especially after the Satyam scandal blew up, many companies, including some family-owned firms, have tried to raise the bar in terms of greater professionalisation, accounting practices and corporate governance. But the rot is far from being contained. And it is not just promoters who are at the centre of this. It also confirms the role of auditors who are responsible for certifying accounts but in many cases appear to be “massaging” the numbers to keep relationships going with their clients.
Some of this has to do with stock market valuations and the need for some promoters to keep them high. At stake is not just the integrity of numbers, however, but also the faith of thousands of investors, local and foreign, who pour in millions to buy stocks of listed companies and help their capital-raising efforts. It is not just India’s capital market regulator and the government who need to bear down on these companies. Promoters and managements also need to recognise that converging accounting standards with globally accepted best practices and professionalising their boards are key to ensuring greater shareholder value over the long haul.
What will count is strong audit committees and a set of good independent auditors. Satyam had a board packed with marquee names, which only goes to show that ethical behaviour cannot be legislated. It has to be practiced and companies which do that have investors lining up to pay an extra premium. The market should punish the others.