Seven years after the implosion of Enron led to the end of accounting firm Arthur Andersen, the Satyam case has put PricewaterhouseCoopers and the US regulator that oversees auditors in the spotlight.
Hyderabad-based Satyam's former chairman, Ramalinga Raju, was arrested last week after saying that he had falsified accounts that went undetected for years.
Satyam, the nation's fourth-largest software exporter, is one of 14 Indian firms with a combined value of $63 billion (R637 billion) that trade on US exchanges, according to Bloomberg data.
The Public Company Accounting Oversight Board (PCAOB), which oversees auditors of US-traded firms, last year examined the Indian arm of PricewaterhouseCoopers, Satyam's auditor since 2000.
"There are gaping holes in the inspection process," said Richard Dietrich, an accounting professor at Ohio State University in Columbus and a former member of a PCAOB advisory group. "As an investor, I can't rely on the inspections."
Price Waterhouse in India said it had complied with accounting standards and it would co-operate with regulators investigating Satyam.
India's regulatory system was weaker than that in the US, said Jermyn Brooks, the director of the private sector programme at Transparency International, an anti-corruption group based in Berlin.
"The enforcement of the laws and the audit standards are not always what we'd expect them to be in North America or western Europe," said Brooks, a former global managing partner at PricewaterhouseCoopers.
Satyam, which counts ArcelorMittal, the world's largest steel maker, and Telstra, Australia's biggest phone company, among its clients, began trading on the New York Stock Exchange in 2001. It has been required to file financial reports with the US Securities and Exchange Commission ever since.
"I don't think you can expect the same level of review of audit work in non-US companies as you will see here," said Charles Mulford, an accounting professor at the Georgia Institute of Technology in Atlanta. "It just shows the added dimension of risk when you're buying non-US companies."
The PCAOB was created by the 2002 Sarbanes-Oxley Act, passed after the fall of Enron and WorldCom. It has been criticised by labour and investor advocates for not being aggressive enough in fighting fraud.
The board "is still ratcheting up its activities, and I assume this will be an incentive to ratchet it up more quickly", said Dennis Beresford, an accounting professor at the University of Georgia in Athens and a former chairman of the Financial Accounting Standards Board, the US accounting rule maker.
The PCAOB had inspected Price Waterhouse India, said Mike Davies, a London-based spokesperson for PricewaterhouseCoopers. He declined to comment on the findings.
Colleen Brennan, a spokesperson for the PCAOB, said the board had inspected auditors in India. She declined to comment on whether the board had also examined Price Waterhouse India.
Raju told Satyam's board on January 7 that he had falsified accounts for "several years" to stave off a takeover. More than $1 billion of cash and assets that had been reported at the end of September didn't exist, he said in a letter to the Bombay Stock Exchange.
"It looks like something that should have been caught by a first-year rookie auditor," said Ganesh Krishnamoorthy, a professor of accounting at Northeastern University in Boston who specialises in audit and corporate governance issues. "It's something that's taught in courses: how to audit cash."
The Institute of Chartered Accountants of India, which oversees auditors, has asked Price Waterhouse India to explain its actions in the Satyam audit by the end of this month.
Ved Jain, the president of the institute, said the results might lead to changes in corporate governance. "It can have far-reaching implications on the lines of Enron," he said.
The institute had set up a six-member panel this week to investigate Satyam's accounts.
Raju was arrested on January 9 on charges including forgery, breach of trust and criminal conspiracy. The government named three new directors to take control of the company.
Accounting experts could not explain how the error described by Raju went unnoticed. "A misreported cash balance is the easiest number to audit that there is," said Mulford.
Price Waterhouse in India said in a press release this month: "The audits were conducted in accordance with applicable auditing standards and were supported by appropriate audit evidence."