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Satyam Scandal Analysis- Ethical behaviour

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Analysis Of satyam scandal and talk about ethical behaviour

Analysis Of satyam scandal and talk about ethical behaviour

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  • Instituational shareholders should try to satisfy themselves that the investee company’s board and sub-committee structures are effective; that independent directors provide adequate oversight; and maintain a clear audit trail of their meetings and of votes cast on company resolutions, in particular contentious issues.
  • Major differences between these two historic scandals lies in the complexity and public understanding of the scandal and the role of the auditor.What is AndersenEnron involved a public company with millions of investors and a large international accounting firm – Arthur AndersenMadoff involved thousands of wealthy investors and a $50 billion Ponzi scheme and a small auditing firm operated by a sole practitioner, David Friehling of New York.The public and press did not understand the complexities of trading energy futures & manipulating markets but they did understand shredding of documents by AndersenIn Madoff’s case, the public understands Ponzi schemes and thus looks no further. Even though the auditor, David Friehling will be facing 105 years in jail
  • Transcript

    • 1. SATYAM SCANDAL
      Presentation by-
      Swapnil Mali
      RohitDeshmukh
      VipinBhosale
    • 2. After Scandal You Can Say
      2
      MITSOT System (2011-13)
    • 3. OVERVIEW
      • Introduction
      • 4. Literature Review
      • 5. Findings and Analysis
      • 6. Conclusions and Further Research
      3
      MITSOT System (2011-13)
    • 7. Introduction
      • Study shows
      • 8. World is not only just going through economic crisis but also ethical crisis with the Corporate frauds, Accounting scandals, Mismanagement, Bribes and many more.
      • 9. Present Situation
      • 10. Purpose of Study
      • 11. Importance of Ethics
      4
      MITSOT System (2011-13)
    • 12. Description of terms
      Code of Conduct
      GAAP
      5
      MITSOT System (2011-13)
    • 13. Uses of Financial Statements
      6
      MITSOT System (2011-13)
    • 14. What is manipulation
      7
      MITSOT System (2011-13)
    • 15. Terms Used
      8
      MITSOT System (2011-13)
    • 16. Need for manipulation
      9
      MITSOT System (2011-13)
    • 17. Manipulation and its effects
      • Less revenue
      • 18. Less TAX
      Expenses
      Income
      • Less revenue
      • 24. Less TAX
      10
      MITSOT System (2011-13)
    • 25. Manipulation and its effects
      • Investors are happy as long as Assets are higher than liabilities.
      • 26. So to make Assets > Liabilities :
      Overstate assets than actual
      Showing fictitious deposits in bank and also interests on it
      Hiding your Liabilities
      E.g. Not showing all the loans , hiding unpaid bills
      11
      MITSOT System (2011-13)
    • 27. MITSOT System (2011-13)
      12
      Literature Review
      SATYAM SCAM
      What is Satyam ? - Company Background
      What happened ? - Accounting Scandal
      How did it happen ? Scandal Analysis
    • 28. MITSOT System (2011-13)
      13
      Literature Review
      SATYAM SCAM
      What is Satyam ? - Company Background
      What happened ? - Accounting Scandal
      How did it happen ? Scandal Analysis
    • 29. MITSOT System (2011-13)
      14
      Company background
      SATYAM SCAM
      What is Satyam ? - Company Background
    • 30. MITSOT System (2011-13)
      15
      Company Background
      • Satyam was established in 1987.
      • 31. 4th fastest growing IT company in India.
      • 32. 9 % market share
      • 33. 53,000 employees
      • 34. Revenue $2.1 billion
      • 35. First Indian company to be listed in three International Exchanges: NYSE, DOW and EURONEXT
    • MITSOT System (2011-13)
      16
    • 36. MITSOT System (2011-13)
      17
      Interesting Facts
      • Development centers across world.
      • 37. Stance over 66 countries across six continents.
      • 38. Satyam serves Fortune 500 Companies which are 163 in number out of its 558 global companies.
      • 39. Exports account for almost 75.9 per cent of its total sales revenues.
      • 40. North America contributes around 65 per cent of the sales revenue followed by Europe.
    • MITSOT System (2011-13)
      18
      Account Practices
      • U.S. Generally Accepted Accounting Principles (USGAAP)
      • 41. International Financial Reporting Standards (IFRS)
      • 42. Complied with Indian accounting standards
    • MITSOT System (2011-13)
      19
      Literature Review
      SATYAM SCAM
      What is Satyam ? - Company Background
      What happened ? - Accounting Scandal
      How did it happen ? Scandal Analysis
    • 43. MITSOT System (2011-13)
      20
      Accounting scandal
      SATYAM SCAM
      What happened ? - Accounting Scandal
    • 44. MITSOT System (2011-13)
      21
      What happened ?
      Satyam board announces the decision to buy stake in Maytas infrastructure a company owned by the promoter family of Satyam for INR 65 Billion
      Satyam announces a board meeting on Dec 29th says it will consider buy back to keep investors trust
      Sale of Pledged shares of promoters result in the promoter stake in Satyam coming down to less than 5%
      World Bank confirms an 8 year ban of Satyam for data theft and bribery
      Dec 23 2008
      Jan 03 2009
      Dec 16 2008
      Dec 18 2008
      Dec 19 2008
      Jan 07 2009
      Dec 28 2008
      Dec 17 2008
      Unpaid files motion against Satyam and promoters for INR 55 Billion claiming fraud
      Satyam calls of the Maytas deal as a result of investor revolt.
      4 Board members resign in wake of Maytas controversy . Market speculation talks of hostile take over by peers
      Mr. Ramalinga Raju resigns and confesses/cites financial irregularities in the book of accounts to the tune of INR 71.36 Billion.
    • 45. MITSOT System (2011-13)
      22
      Literature Review
      SATYAM SCAM
      What is Satyam ? - Company Background
      What happened ? - Accounting Scandal
      How did it happen ? Scandal Analysis
    • 46. MITSOT System (2011-13)
      23
      Scandal Analysis
      SATYAM SCAM
      How did it happen ? Scandal Analysis
    • 47. MITSOT System (2011-13)
      24
      Satyam + PwC
      Ramalinga Raju – CEO created INR71.36 billion in fake billing and cash
      PwC auditors missed cash accounts?
    • 48. MITSOT System (2011-13)
      25
      Confessions of Raju
      • “The scam of INR 71.36 billions in the company’s balance sheet was a result of small manipulation of accounts done many years back.”
      • 49. “Riding a tiger, not knowing how to get off without being eaten.”
    • MITSOT System (2011-13)
      26
      The wealth of Satyam investors has been wiped-out by the scandal.
      Source: Economic Times, 2009
    • 50. Question Raised ?
      MITSOT System (2011-13)
      27
    • 51. MITSOT System (2011-13)
      28
      Investors
      Investors
    • 52. Investors
      Investors play an important role in detecting financial position of a company.
      Investors must ensure that the share value which is listed is genuine and as per its financial status.
      Institutional investors should take more responsibility.
      Information about the company should be latest, from trusted source, easily accessible and correct.
      New regulation for information Act.
      Investors should take more care before investing.
      No risk involved if CEO is the founder of the company.
    • 53. Board
      Must monitor the ethical policies and the way they are being maintained in the company.
      Accountable for the financial information being projected.
      No to inactive board members.
      Authority to independent board of directors.
      Clear understanding of responsibility between the board and next level employees.
      Qualified Board members.
    • 54. Government Regulations, Policies and intervention
      Government should always plays an active role in the company affairs because the company runs with the public money.
      The government must frequently check the company’s performance in the market and take necessary steps in curtailing any malpractices or falsification.
      Government is not taking any corrective measures in case of any violations
      If the auditor do their work sincerely then any balance sheet and income statements would show the fair value of the company’s financial records.
      Government intervention must be increased to have a foolproof mechanism in the company policy matters.
    • 55. Accounting Standards
      Auditors main responsibility is to check fairness and trueness of financial statements.
      Proper Audit Tools.
      Freedom for auditors
      Reputation of auditing firm/individual can’t avoid scandals.
      Most of the companies involved in mega scandals were audited by reputed auditing firms.
    • 56. Ethics of Individuals/Company, Defining and implementing code of conduct
      Search or Nominations Committee
      Proper code of conduct updated on regular basis should be implemented.
      Every company should have fraud detection mechanism.
      Good Corporate Governance
      Good educational background doesn’t always mean individual has good ethics.
      Whistle blowing policies
    • 57. MITSOT System (2011-13)
      34
      Result of scandal
    • 58. A Tale of Two Frauds
      Then : December, 2001
      Now : December, 2008
    • 59. Failure of Auditors
    • 60. Role of External Auditor
      The auditor did not confirm the bank balances independently
      The various protocols were violated
      Two set of Confirmation
      No sample checking of invoices
      Liability against tax not reported
      Extra-ordinary payment of audit fee
      Not verifying the accrue interest on fake FDs
      Not verifying the TDS on accrued interest
      Not doing end to end audit
      Systems were found to be lax and same was not taken up for rectification
    • 61. Role of Internal Auditor
      MITSOT System (2011-13)
      38
      The auditor did not do beginning to end transactions verification
      Cash and bank balances were not verified
      Fake invoices were ignored
      The matter was not reported to Audit Committee
      The audit plans were prepared on the basis of the approval of the promoters
      Serious findings of the auditing team were ignored by the audit team leader
    • 62. MITSOT System (2011-13)
      39
      Questions and Discussion

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