"It's something very unexpected. It will make a major dent in the credibility of the corporate sector," said K.H. Vishwanathan, executive director at India- based audit firm RSM Consulting Group.
His comments were in response to the announcement by Satyam (SAY) Chairman B. Ramalinga Raju that the company had inflated its cash and bank balances on the balance sheet by more than $1 billion.
Some brokerages also moved fast to suspend the rating on the company, India's fourth-largest software exporter and one of the best-known brands outside the country, following the announcement.
"We believe that the current event will inflict collateral damage to the [ information technology] sector's premium valuations vis-Ã -vis broader markets, as well as could dent foreign investor faith in other Indian companies, " Emkay Research analyst Manik Taneja wrote in a report.
Emkay, as well as Angel Broking discontinued their rating on Satyam stock, which crashed more than 70% after the announcement, wiping out millions of dollars in its market value.
Angel Broking analyst Harit Shah dubbed Satyam "India's 'Enron'", adding Satyam's misrepresentation constituted "one of the biggest-ever frauds in Indian corporate history."
A spokeswoman for Aberdeen Asset Management, one of the largest investors in Satyam, declined to comment immediately, but said the asset management firm was likely to issue a statement later.
Mike Davies, a London-based spokesman for Satyam's external auditor PricewaterhouseCoopers, also said the accounting firm will issue a statement later.
"Based on our experience, I think it can't happen without the knowledge of the auditor. [The auditors] may not know 100%, but there would definitely have been some leads for them to latch on to," said RSM's Vishwanathan, noting that the financial misrepresentation by the company happened over a period of several years, according to Raju's letter.
The Indian software industry's umbrella body, meanwhile, played down the likely impact of Satyam's disclosure on the industry.
"While the law will take its own course, this incident is particularly unfortunate as the Indian information technology-business process outsourcing industry had set very high standards of ethics and corporate governance," the influential National Association of Software and Service Companies said in a statement.
"This is a stand-alone case of failure of corporate governance and it is critical that it be viewed in this light," Nasscom added.
The Indian government also got into the act, meantime, with corporate affairs minister P.C. Gupta reportedly saying the contents of Raju's letter were being verified.
"Once the contents are verified, proper action will be taken," Gupta said at a press conference, according to Dow Jones Newswires.