This document summarizes the Satyam scandal, where Satyam Computer Services Ltd misrepresented its financial accounts by inflating revenues, profits, and cash balances. The promoters, Ramalinga Raju and others, are primarily responsible for the accounting fraud. However, the external auditors, PricewaterhouseCoopers, who were tasked with ensuring accurate financial reporting, are also culpable for failing to catch the discrepancies. The auditors face penalties under Indian law for negligence, and disciplinary action from the Institute of Chartered Accountants of India that could restrict their ability to serve as auditors.

1. Bhavya Bhargava
B.COM(H) | 14001578
Auditing Assignment
SATYAM SCANDAL

2. A View On Satyam Case
Satyam Computer Services Ltd was founded in 1987 by Ramalinga Raju. The company
offers information technology (IT) services spanning various sectors, and is listed on the New
York Stock Exchange and Euronext. Satyam's network covers 67 countries across six
continents. The company employs 40,000 IT professionals across development centres in
India, the United States, the United Kingdom, the United Arab Emirates, Canada, Hungary,
Singapore, Malaysia, China, Japan, Egypt and Australia. It serves over 654 global companies,
185 of which are Fortune 500 corporations.
What is the Satyam scamabout?
It is about corporate governance and fraudulent auditing practices allegedly in connivance
with auditors and chartered accountants. The company misrepresented its accounts both to its
board, stock exchanges, regulators, investors and all other stakeholders.
Is this an accounting fraud, a market manipulation/fraud or both?
It is a fraud, which misled the market and other stakeholders by lying about the company’s
financial health. Even basic facts such as revenues, operating profits, interest liabilities and
cash balances were grossly inflated to show the company in good health.
Who is to blame here? The promoters?
The promoters are primary culprits, although it is almost impossible to misrepresent such
facts without the connivance of the auditors and some executive board members. Independent
directors, it seems, were kept in the dark about the actual books of accounts.
What about the auditors?
The role of external third party auditors, who were tasked to ensure that no financial bungling
is undertaken to carry out promoters’ interest or hide facts, have also been brought to
question.

3. Liability of Auditor is also one of the important issues to be determined. Pricewaterhouse
Coopers has been the statutory auditor for Satyam Computer services for last six years.
Auditor ‘s involvement is crystal clear. Consequent to a written confession by Satyam
Computer Chairman B. Ramalinga Raju, admitting to the recent multi crore scam of
misrepresenting facts in the Company’s Balance sheet to the tune of around Rs. 8000 crores,
has brought the role of auditors and Accountants for the company under scrutiny26.
The role of PricewaterhouseCoopers27- the statutory auditors in ―India ‘s Enron comes
under the spotlight amid allegations that large Indian companies regularly use misleading
accounting techniques and bully analysts, accountants and auditors into staying quiet.
Under S. 227 read with S. 233 of the Companies Act, the auditors are required to accurately,
fairly and diligently review and audit the accounts of the company before issuing the signed
auditors ‘report. Failure to do so would result in a penalty under S.233 of Rs. 10,000. Under
Sections 62 and 63 of the Act, any person issuing a prospectus that contains a false statement
may be punished with up to 2 years’ imprisonment and fine up to Rs.50, 000. This includes
directors, promoters and experts such auditors and investment bankers. Satyam also had an
ADS listing in the US and filed a prospectus with the US SEC. Under Rule 10b-5 issued
under Section 10 of the Securities Act of 1933, it is unlawful for any person to make any
untrue statement of a material fact or to omit to state a material fact in connection with the
sale of a security. Under Section 11 of the Securities Act, the persons who signed the
registration statement (directors and officers) are liable in addition to the underwriters,
auditors and other experts.

4. In addition, disciplinary proceedings/enquiries could be initiated by the Institute of Chartered
Accountants of India against the audit firm, which would be a very serious implication for the
audit firm, as it could have the immediate effect of disqualifying their eligibility to act as
statutory auditors for several banks and other institutions. Such an event could also result in
suspension or debarment of the audit firm if the ICAI concludes that there were serious lapses
on the audit firm ‘s part.