Q+A - How did Satyam pull off India's biggest corporate fraud?

(Reuters) - India vowed to strengthen laws to prevent corporate fraud after Satyam Computer, the country's fourth-largest software company, shocked investors by revealing profits had been falsely inflated for years.

Chairman Ramalinga Raju resigned on Wednesday after revealing India's biggest corporate scandal in memory, sending the company's shares plunging nearly 80 percent.

The following is an overview of how the fraud escaped detection for so long and what compelled a soft-spoken man born into a family of farmers to risk all.

Q: How did Satyam escape detection?

A: On the face of it, New York-listed Satyam did everything by the rulebook, with an international firm auditing its books, declaration of accounts in accordance with Indian and U.S. standards, and the requisite number of independent directors with excellent credentials, including a Harvard business school professor and a former federal cabinet secretary.

Raju, in his now famous 5-page letter outlining the deception, said no other board member -- past or present -- was aware of the financial irregularities.

Regulators were blindsided, and analysts and experts say there are "systemic flaws" in accounting and audit practices.

About $1 billion (656 million pounds), or 94 percent of the cash, on the company's books was fictitious, Raju said, and manipulation of the cash flow may be a reason why the fraud was undetected.

"Companies have manipulated P&L (profit and loss) accounts before, but cash flow is the Holy Grail -- you don't tamper with it," said Saurabh Mukherjea, an analyst at UK-based research firm Noble Group.