Could Satyam Scam Be Avoided If Sarbanes Oxley Act Was Effectively Put In Place?

Sarbanes Oxley Act is a U.S. Federal law passed in the year 2002, in the backdrop of financial or corporate frauds in the US like Enron Corporation and WorldCom. It is also referred to as the SOX Act and Corporate Responsibility Act of 2002. The Act came out with some of the following important measures:

1. Strict recordkeeping of documents and audit trails was introduced and greater responsibility of accountability was placed on auditors, board of directors, corporate officers, and accountants.
2. Differentiation of auditing and accounting services for the listed companies. In other words, a firm providing accounting services to the listed companies cannot perform audits of the same listed companies.
3. Greater emphasis on corporate responsibility.
4. Criminal penalties to be levied on violation of securities law.

PwC, the auditing firm, had turned blind eye to the activities carried out in Satyam. Some of the main loopholes in accounting that could have been easily founding had the audit system in its place are:

1. Bank Balance verification: The auditing firm entirely relied on the bank statements falsely generated by Mr. Raju depicting the bank balances which were not even in existence. The auditors did not take efforts to directly verify bank balances shown in books of accounts with the ban directly.
2. There was no proper concept of maker and checker put in place. The persons who were generating invoices and reports were only responsible for vouching and verification of the same.
3. PwC never raised a point on cash in hand lying idle and not being invested elsewhere in order to generate revenues.
4. No physical verification of employees was done and no questions were raised on where exactly is the salary money is being deposited and who are the end beneficiaries of the same.
5. There was no proper internal control in place.

In view of the above, in my opinion, Satyam fraud could have been avoided or at least it would have not taken nine years for disclosure of fraud to the world had Sarbanes Oxley Act been properly implemented.