The Satyam fiasco has reached its conclusion. Ramalinga Raju has resigned after admitting to cooking his books for years. It seems that Satyam overstated revenues and profits financial year after financial year, and as on 30th September 2008 showed (non-existent) cash and bank-balances of Rs. 50,400 million and did not report liabilities to the extent of Rs. 12,300 million. News channels put the extent of the fraud at Rs. 70,000 million.

While Ramalinga Raju has stated he’s ready to face the laws of the land (sporting, isn’t he?), this raises some very interesting questions. Most board members were unaware, or so they claim, of this fraud. So what exactly is the role of the board? Or do most boards still buy whatever management tells them? And what about the stat auditors, PriceWaterhouseCoopers? What have they been doing all these years? They have signed off on the accounts. What about all the institutional investors in Satyam? Fidelity, Aberdeen and the lot? What kind of due diligence was done here? Of course, PWC is going to get most of the flak here, as all the other parties are going to claim that their decisions were based on the accounts certified by PWC.

Most Indian companies excel at creative accounting. So the scary part is that there may be many more Satyams waiting to happen. The magnitude of this fraud lies in the fact that this is not some small mom-and-pop store. Satyam is an index stock, and is also listed abroad. It’s part of the top 4 Indian IT companies. How is this going to impact investment in India in these already difficult times? Look at the list of people Satyam fooled. The BSE, the NSE, PWC, Investment banks….these were not naïve retail investors relying on TV recommendations. These were specialists. And that is what makes this so petrifying. Not because corporate governance, transparency and honest reporting are problem areas in the Indian corporate sector. We know they are. But this is terrifying because the checks and balances have failed miserably. At worst, the regulators, auditors and other agencies might have been in on the scam. At best, they are a bunch of incompetent idiots.

2009 has got off to a rocking start, hasn’t it?

PS: Check out Liju’s interesting post on how Satyam kept lying about the Maytas deal.

UPDATE: Here’s what Citigroup’s research arm has to say about the possible fallout of the Satyam episode.