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Satyam Scam

Satyam Scam

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Published by Priyanka Banka

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Published by: Priyanka Banka on Aug 12, 2010
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SATYAM SCAM

AGENDA:
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Introduction Major Satyam Clients Time Line Profits Balance sheet Satyam: Dec -2008 to Jan -2009 How it happened? What happened next???

Continued
‡ ‡ ‡ ‡ ‡ ‡ ‡ Raju s confession on Jan 09 Perfect Auditors Role of independent directors The Fallout Today Satyam Current News Analysis: Satyam fraud raises integrity concerns in India

Introduction
‡ Satyam was established in 1987. ‡ 4th fastest growing IT company in India. ‡ 9 % market share ‡ 40,000 employees ‡ Revenue $2.1 billion ‡ It is the first company of India listed in three International Exchanges i.e. NYSE, DOW and EURONEXT

Continued
FOUNDER CEO : : Mr. Raju Ramalinga Mr. A. S. Murthy

Major Satyam Clients

Timeline
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1987 - Incorporated as a Private Limited Company 1988-1992 - IPO 1993-1996 - Satyam Technology Center established 1997-2000 - Presence in 30+ Countries 2001-2004 - Founded Satyam BPO 2005-2008 - Acquisition of Bridge Strategy,Citisoft, Knowledge Dynamics, Nitor Solutions, S&V Management Consultants - 30+ Global Solution centers 2009 - 07 Jan - Erstwhile chairman declared that the company s profits had been overstated for several years 13 April - Tech Mahindra acquired majority stake in Satyam 21 June - New brand, Mahindra Satyam launched

Profits

Balance sheet

Satyam: Dec -2008 to Jan -2009

How it happened?
‡ ‡ ‡ ‡ ‡ ‡ Maytas Acquisition. World Bank. Accounting Standards of 2009. Investors Aborted. Board Members Resigned. On 7th Jan., 09, Chairman resigned after announced involvement in fraud.

What happened next???

Raju s confession on Jan 09
‡ ‡ ‡ ‡ ‡ ‡ The Balance Sheet carries as of September, 30, 2008: Inflated Cash and Bank balance of Rs. 5,040 Crores Accrued interest of Rs. 376 Crores which is non-existent Understated liability of Rs. 1,230 Crores Over stated debtors position of Rs. 490 crores For the September Q2, reported a revenue of Rs. 2700 Crores and an operating margin of Rs. 649 Crores as against the actual revenues of Rs. 2,112 Crores and an actual operating margin of Rs.61 Crores ( 3% of revenues). This has resulted in artificial cash & bank balances going up by Rs. 588 Crores in Q2 alone. Immediate Market Reaction: Sensex stock index dropped 7.3% Satyam shares fell nearly 78%

‡ ‡ ‡

Perfect Auditors

‡ ‡ ‡

PWC Satyam s auditors since Jun 2000 Credibility of PWC???... amount too big to be noticed PWC: ± our audit in accordance with the auditing standards generally accepted in India ± Satyam's financial statements are the responsibilities of the company's management ± under Satyam s management controls over financial reporting and auditing ± Audit reports between June 2000 to September 2008 unreliable

Role of independent directors
‡ SEBI's Listing Agreement, calls for certain proportion of independent directors in the board. Companies appoint luminaries to the boards. Key Responsibilities ± protect interest of shareholders and ± strategy of the organization. Satyam s Case - approval of buyout weakened the credibility of independent spirit . Future Impact - Independent directors will try to gain a greater understanding of a company s business.

‡ ‡

‡

‡

The Fallout
‡ ‡

Two class action suits files in US by shareholders of Satyam s ADRs ICAI : ± Issued two revised accounting standards SA 500 and SA 720 to enhance quality of audits (effective April 1, 2010) ± Joint Audits for companies ± Scheme of rotation of auditors ± Planning to set up a rating system for corporate governance ± Planning to set up a serious fraud detection cell to assist regulators like RBI and SEBI to prevent similar incidents in future Government: ± Reviewing The Chartered Accountant Act, 1949, and the Chartered Accountant Regulations, 1988 to plug loopholes ± Serious Fraud Investigation Office (SFIO) of Ministry of Corporate Affairs probing accounts of 325 companies tied to Raju and family SEBI: ± Asks promoters of listed companies to disclose whether they have pledged shares ± Places PWC under probe

‡

‡

Today
‡ ‡ Board decides to sell 51% stake Prospective bidders must: ± Submit detailed expression of interest ± Show at least $290 million dollars on books by March 20th Eligible buyers will gain access to business, financial and legal documents Potential suitors: ± Larsen & Toubro (has 12% stake) ± B.K. Modi s Spice Group ± Tech Mahindra ± iGate ± IBM and others ± Fidelity Open offer of at least 20% of shares after acquiring up to 31% through a preferential allotment

‡ ‡

‡

Satyam Current News
-Satyam Loses 46 Customers to Rivals (Economic Times Reports) Applied Materials Inc., Nissan Motor Co., Sony Corp., State Farm Mutual Automobile Insurance Co. to name a few - Dt. 17-Mar-09.

Analysis: Satyam fraud raises integrity concerns in India

‡ ‡ ‡ ‡ ‡

Transparency Ethics Governance Anti-corruption Accountability to stakeholders

Presented by‡ ‡ ‡ ‡ ‡ ‡ Chaitri Shikha Niraj Rushab Pavan Shrenik 09 11 12 17 18 21

Bibliography
www.google.com ‡ www.wikipedia.com ‡ www.bseindia.com

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