Accounting scandals involve intentional manipulation of financial statements through practices like overstating assets and hiding liabilities in order to misrepresent a company's financial health. The two largest accounting scandals were Enron and Satyam. Enron hid huge debts off its balance sheet and claimed profits before earning them through improper use of mark-to-market accounting. Satyam's CEO admitted to creating over $1 billion in fake revenues in the company's books through many years of small manipulations, deceiving auditors and investors. Both scandals ultimately collapsed when the manipulations could no longer be concealed.

1. ACCOUNTING SCANDALS

2. What is an accounting scandal?
Accounting fraud is intentional manipulation of
financial statements to create a facade of a
company's financial health. It involves an
employee, account or the organization itself and is
misleading to investors and shareholders

3. Terms used for manipulation
Manipultion of financial
statements
Window
dressing
Creative
accounting
Cooking
the books

4. Investors Are Happy As Long As
Assets Are Higher Than Liabilities
So to make assets > liabilities
(Creative accounting comes into picture)
 Overstate assets than actual
 Showing fictitious deposits in bank and also interest on it
 Hiding your liabilities.
 E.g. :- 1. Not showing all the loans.
 2. Hiding unpaid bills.

5. 2 Biggest reported accounting
scandals
ENRON ACCOUNTING SCANDAL
SATYAM ACCOUNTING SCANDAL

6. Enron
 Enron Corporation was an American energy, commodities, and services
company based in Houston, Texas.
 It was founded in 1985.
 As the result of a merger between Houston Natural Gas and
Intermonth, both relatively small regional companies in the U.S.
 The company was initially named "HNG/Intermonth Inc.", even
though Intermonth was technically the parent.
 At the outset, Segnar was CEO for a short time, before he was fired by
the Board of Directors whereupon Lay was tapped to be the new CEO.
 Lay moved the headquarters of the new company back to energy
capital Houston.
 The company then set out to find a new name, spent upwards of
$100,000 in focus groups and consulting before "Enteron" was
suggested. The name was eventually dismissed over its apparent
likening to an intestine and shortened to "Enron."

7. ENRON ACHIEVEMENTS
Enron was named "America's Most Innovative Company"
by the magazine Fortune for six consecutive years, from
1996 to 2001
During August 2000, Enron's stock price attained its
greatest value of $90.56
Before its bankruptcy on December 2, 2001, Enron
employed approximately 20,000 staff and was one of the
world's major electricity, natural gas, communications and
pulp and paper companies, with claimed revenues of nearly
$101 billion during 2000.
It was on the Fortune's "100 Best Companies to Work for in
America" list during 2000, and had offices that were
stunning in their opulence.

8. Fall Of Enron
By the fall of 2000(from around 1996), Enron was
starting to crumble under its own weight.
CEO Jeffrey Skilling had a way of hiding the
financial losses of the trading business and other
operations of the company by creative accounting.
The company was running into losses and
company was showing profit of around $101 bn,
through it’s financial statements.

9. How Did Enron Do It?
They used mark-to-market practice led to schemes
that were designed to hide the losses and make the
company appear to be more profitable than it really
was.
They kept huge debts out off balance sheet
In Enron's case, the company would build an asset,
such as a power plant, and immediately claim the
projected profit on its books, even though it hadn't
made one dime from it i.e. they totally ignored accrual
concept.

10. Mark-to-market Practice
This is a technique used when trading securities where
you measure the value of a security based on its
current market value, instead of its book value. This
can work well for securities, but it can be disastrous for
other businesses.
Enron were playing with the stock market, they had a team to
ensure that the market value of shares do not fall. These was
the reason why Andrew Fastow, a rising star who was promoted
to CFO in 1998, came up with a devious plan to make the
company appear to be in great shape, despite the fact that
many of its subsidiaries were losing money

11. Fun Fact
Enron was named "America's Most Innovative
Company" by the magazine Fortune for six consecutive
years, from 1996 to 2001 and in 2001 enron scandal
came up to the public.
 Despite of huge losses, enron was paying taxes and
continuously showing its profit high to gain position in
stock market.
During August 2000, Enron's stock price attained its
greatest value of $90.56 and october 2001 it came to
$0.67.

12. Satyam
Satyam was established in 1987.
4th fastest growing IT company in INDIA.
It had development centres in 66 countries across six continents.
Satyam serves fortune 500 companies which are 163 in number
out of 558 global companies.
It had 53000 employees.
Exports account for almost 75.9% of its total sales revenue.
First indian company to be listed in three international
exchanges :
 NYSE
 DOW
 EURONEXT

13. Software
Development,
ERP,
Outsourcing,
CRM,
Consulting
IT
Automotive
Banking and
finance
Telecom and
Media
Biotech
Healthcare

14. What Did They Do?
Ramalinga raju :- CEO.
Created INR 71.36 billions in the company’s balance sheet
in fake billing & cash.
PWC auditors missed cash accounts.
Satyam + PWC

15. Raju Confesses
 Jan 07, 2009 :-
 Mr. Ramalinga raju resigns and admits financial
irregularities in the books of accounts to the value of INR
71.36 billion.
Raju said :-
The scam of INR 71.36 bn in the company’s balance sheet was a result of small
manipulation of accounts done many year’s back.

16. Conclusion
Investors play an important role in detecting financial
position of a company. They must ensure that the share
value which is listed is genuine as per it’s financial
status.
Auditor’s play an important role in safeguarding
investor’s interest, no fraud is possible without auditors
negligence or support.
Government intervention must be increased to have a
full proof mechanism in the company policy matters.