The fraud was perpetrated by inflating the revenue of the company through false sales invoices and showing corresponding gains by forging the bank statements with the connivance of the Statutory and Internal Auditors of the company. Through investigation it was found that certain people came into the office only at nights to generate fake invoices. This used to happen only towards the end of the quarter or the month, the level of the organized fraud can be interpreted from this. An accrued interest of $77.46 million was shown, which was nonexistent, an understated liability of $253.38 million on account of funds was arranged by Raju himself and an overstated debtors ' position of $100.94 million was presented. The annual financial statements of the company with inflated revenue were published for several years and this lead to higher price of the stock in the market. In the process, innocent investors were lured to invest in the company. Attempts were made to conceal the fraud by acquiring the companies of family members and friends, but the gap between the actual and inflated revenues kept growing since April 1999. PricewaterhouseCoopers affiliates served as independent auditors for Satyam. According to a report published by the S.E.C., the auditors had failed to independently confirm cash balances in bank accounts. They relied on the management to provide the cash balances instead of
![Study Study](/uploads/1/2/6/4/126477410/215758922.jpg)
13 PagesPosted: 20 Oct 2015
The scam at Satyam brought to the light the role of corporate governance in shaping the protocols related to the working of audit committee and duties of board.
Date Written: October 20, 2015
Abstract
From Enron, WorldCom and Satyam, it appears that corporate accounting fraud is a major problem that is increasing both in its frequency and severity. Research evidence has shown that growing number of frauds have undermined the integrity of financial reports, contributed to substantial economic losses, and eroded investors’ confidence regarding the usefulness and reliability of financial statements. The increasing rate of white-collar crimes demands stiff penalties, exemplary punishments, and effective enforcement of law with the right spirit. An attempt is made to examine and analyze in-depth the Satyam Computer’s “creative-accounting” scandal, which brought to limelight the importance of “ethics and corporate governance” (CG). The fraud committed by the founders of Satyam in 2009, is a testament to the fact that “the science of conduct is swayed in large by human greed, ambition, and hunger for power, money, fame and glory”. Unlike Enron, which sank due to “agency” problem, Satyam was brought to its knee due to ‘tunneling’ effect. The Satyam scandal highlights the importance of securities laws and CG in ‘emerging’ markets. Indeed, Satyam fraud “spurred the government of India to tighten the CG norms to prevent recurrence of similar frauds in future”. Thus, major financial reporting frauds need to be studied for “lessons-learned” and “strategies-to-follow” to reduce the incidents of such frauds in the future.
Keywords: Corporate Accounting Frauds; Satyam Computers; Case Study; India; Corporate Governance; Accounting and Auditing Standards
Suggested Citation:Suggested Citation
Bhasin, Madan Lal, Corporate Accounting Fraud: A Case Study of Satyam Computers Limited (October 20, 2015). Open Journal of Accounting, 2013, 2, 26-38. Available at SSRN: https://ssrn.com/abstract=2676467