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
SATYAM SCANDAL Presentation by- Swapnil Mali RohitDeshmukh VipinBhosale
After Scandal You Can Say 2 MITSOT System (2011-13)
MITSOT System (2011-13) 19 Literature Review SATYAM SCAM What is Satyam ? - Company Background What happened ? - Accounting Scandal How did it happen ? Scandal Analysis
MITSOT System (2011-13) 20 Accounting scandal SATYAM SCAM What happened ? - Accounting Scandal
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.
MITSOT System (2011-13) 22 Literature Review SATYAM SCAM What is Satyam ? - Company Background What happened ? - Accounting Scandal How did it happen ? Scandal Analysis
MITSOT System (2011-13) 23 Scandal Analysis SATYAM SCAM How did it happen ? Scandal Analysis
MITSOT System (2011-13) 24 Satyam + PwC Ramalinga Raju – CEO created INR71.36 billion in fake billing and cash PwC auditors missed cash accounts?
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.”
“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
MITSOT System (2011-13) 28 Investors Investors
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.
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.
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.
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.
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
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
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
MITSOT System (2011-13) 39 Questions and Discussion