Further to my last piece, it is quite startling to know that the last three years' Satyam annual reports state that the audit committee has no financial expert on it. According to the disclosure, the company had been unable to find an appropriate candidate. Now that seems to be incredibly lame. When the company could get a phenomenal board of directors consisting of domestic and international big-wigs, it is just impossible to believe that they were unable to find a financial expert. Maybe the company was unable to find a financial expert who would agree with their ways of transacting.
This puts even more of an onus on the auditors and the CFO. Both should have been in a position to highlight the discrepancies in the accounts. The question that amazes the most is how did the auditors provide for the cash balances without bank statements? If those bank statements existed, then were they forged? If they were forged, was the CFO aware of the same? Are audit firms in a position to identify forged bank statements?
Another important issue that comes to mind is that in the absence of a mandatory attendance requirement of independent directors, what was the board composition at the Satyam results' board meetings. Were the results questioned?
Leaving the Satyam issue aside, an important disclosure point has been raised with the merger of Bank of America and Merrill Lynch. Albeit a legal question, this still makes an investor want to have higher disclosure standards. Read the FT article on:
1 comment:
Tanushree, many of the issues raised by you on Corporate Governance in Indian Companies are very relevant indicators by which investors could have and should have judged companies. Being in Hyderabad we have never even considered investing in Satyam because the BASIC reputation of the promters was not very good. Absence of any finance professional on the audit committe should have raised eyebrows, but never did. The absence is more by choice than by limitation and this is the story of most companies in India. The very presence of the promoters of an IT company busines into the murky real estate business should have raised questions.. but it never did. The analyst community, including Investment Bankers, in India and abroad, is equally at fault. They are happy to turn a blind eye as long as they are in the money.
It's easy for everyone to put the blame on others. The dot com valuations were a scam on investors. The valuations given to mining stories was another scam of sorts. The forecast on commodity prices was an equally big scam. If not a scam, then the whole thing was done by a bunch of incompetent analysts.
Either way they are equally guilty. And they are not even accountable to anyone ... thanks to all the disclaimers in their reports!!!
I guess where big money is involved, fraud (in different manifestations) will always be there and we have to be on guard all the time.
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