Corporate Accounting Fraud: A Case Study of Satyam Computers Limited

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.

Fraudulent Reporting Practices by Satyam

“…Satyam was as an example of India's growing success; it won numerous awards for innovation, governance, and corporate accountability [1]. As M. Bhasin [10] As S. Ramachandran [30] pointed out, "Using his personal computer, Mr. Raju created numerous bank statements to advance the fraud. He falsified the bank accounts to inflate the balance sheet with balances that did not exist.…”

“…"Yet, Satyam's directors went along with the decision, raising only technical and procedural questions about SEBI's guidelines and the valuation of the Maytas companies. They did not even refer to the conflict of interest in buying companies in a completely unrelated business, floated by the chairman's relatives," remarked M. Bhasin [7]. Indeed, one of the independent directors even praised the merits of real-estate investment on Satyam's part.…”

Satyam’s Manipulative Accounting Methodology Unveiled: An Experience of an Asian Economy

“…"But funnily, even Raju, in his wildest of dreams, did not foresee that he could not possibly go undetected forever for cooking up his balance sheets to the tune of thousands of crores," stated Bhasin (2013) and connived with each other in actively inflating the revenues and understating the liabilities of Satyam by manipulation and fabrication of the books of account and financial statements and falsification of the information presented in the same. As Bhasin (2012) reported, "The FS prepared or caused to be prepared by them did not contain true-and-fair disclosures of the financial position of Satyam. They had deliberately projected a grossly false picture of the financials of Satyam to millions of investors.…”

“…Some of the greatest examples of corporations, who manipulated their accounts, are summarized in Table 1. As Bhasin (2012) stated, "If MA no longer dominate headlines as they did, when Enron and WorldCom imploded in 2001-02, that is not because they have vanished but because they have become routine." For example, Lehman Brothers were cooking the account books far more than we ever imagined.…”

By-product Extraction of a Rationality-based Agency Conflict Index from Selected Credit Unions in Kenya: Introducing the Agency Conflict Discriminant

“…This means that the probability of occurrence of the conflict depends on the prevailing difference between the two rationalities as a proportion of the total possible difference (ГA-ГP)/ (ΦA-ГP). Table 4 shows the effect of various such proportions on corporate integrity of values 0.6, 0.9 and 0.3 [31][32][33].…”