Continuing from the previous Post, Pathik sends me the following on Clause 49 and the Sarbanes Oxley Act;

The Sarbanes Oxley Act was primarily introduced subsequent to the Enron Scandal in order to regulate corporate governance in the US. India however failed to learn from US’s mistakes and did not introduce similar measures in India. The SEBI did introduce Clause 49 of the listing agreement requiring more disclosures from the Company. However, we are aware that Satyam managed to pull off a fraud of such magnitude despite formally complying with all the requirements under Clause 49 as well as other SEBI regulations such as the DIP Guidelines and so forth.

One also finds the need to reassess the liabilities and responsibilities of auditors under the Indian legal regime. The very fact that a member of the elite Big Four, Pricewaterhouse Coopers was caught completely unawares of the reality as it existed distinct from that portrayed in Satyam’s books of accounts indicates the need for more stringent checks on the role of auditors and to make them more accountable.

It is indeed encouraging that SEBI has already initiated steps towards strengthening the laws pertaining to Corporate Governance with the SEBI Committee on Disclosures and Accounting Standards (SCODA) met in Mumbai on January 9, 2009 and  after detailed deliberations, the SCODA recommended that a peer review of the working papers (relating to financial statements of listed entities) of auditors would be conducted in respect of the companies constituting the NSE – Nifty 50 and the BSE Sensex. Such a review would be in relation to the last quarterly results and the last audited annual financial results. For this purpose, a panel of auditors would be prepared by SEBI. This exercise would be taken up following the publication of 3rd quarter results and is expected to be completed by end of February 2009. This recommendation has been accepted by SEBI. In light of the Satyam fiasco, SEBI needs to take a re-look at the mandatory requirements prescribed and set up more checks on the lines of the Sarbanes Oxley Act. Hopefully, the Companies Bill, 2008, shall be passed by the Parliament soon and provide us with a solution to avoid frauds of such magnitude, which end up tarnishing India’s corporate image in todays era of globalization.