Friday, January 9, 2009

Indian Fire Drill

Following up our early post on Satyam, analysts suggest that IBM Consulting and Accenture may be the big winners in taking business from Satyam. It sounds logical, for some of the reasons we stated earlier.

As an aside, the regulatory fire drill has begun. According to the Wall Street Journal, "The Securities and Exchange Board of India, the chief markets regulator, said Friday it will carry out a review of auditors' working papers relating to companies in the Sensex and the National Stock Exchange Nifty 50-share index in a bid to boost investor confidence in financial disclosures." It's difficult to understand how this will work in practice. Auditors auditing auditors is a recipe for expense, lots of time-wasting, and arcane discussions about how "I would have done it a better way." Just have a look at the PCAOB's reports on auditor inspections. They are a total snooze, and contain almost no actionable information for an issuer. I don't understand what firms are going to carry out this exercise, what their outputs will be (another opinion?), and if investors will will be heartened or have heartburn.

Now, the regulators are talking about reconstituting the Satyam board. Sounds good, especially since the barn is empty anyway with the exit of several directors. However, the Chairmen of Wipro and of InfoSys are mentioned as great candidates. Aren't they also going to get re audited? Won't they be conflicted about preserving Satyam versus taking business from them and keeping it from falling into the hands of IBM Consulting? For the garden variety fraud described by Satyam's founder, one doesn't need IT experience to understand where the fixes should be established.

It is comforting to know that Indian regulators can run a fire drill in as chaotic and ill-conceived a manner as our own regulators.

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