GROUP 1

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Chairman of the board: how much profit did we make last year? finance director: what profit do you want us to have made ? You can take your pick from the following profit figures.

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µWindow dressing¶ refers to attempts by business to present its financial position in the best light. Its a form of creative accounting involving the manipulation of the figures to flatter the financial position of the business. The focus of window dressing: liquidity : hiding a deteriorating liquidity position profitability: massaging the profits

But accounting standards permit some flexibility of interpretation. . When coupled with managerial interest in presenting figures in most favorable light the result is window dressing.` ` ` Some methods of window dressing are contrary to law or contrary to the accounting standards and would not be employed by reputable firms.

` ` Some forms of window dressing are allowed within the law and accounting standards but if the intention is to deceive the stake holders then they are unethical.4 represents fraud where as 2 and 3 are grey areas. In the continuum that follows there is no scope for creative accounting in 1. .

Flexibility to give a true and fair view Work within regulatory frame work to ensure the interest of stakeholders. Flexibility used to give a creative view 4. 3. . Flexibility used to give fraudulent view Working within the regulatory frame work but this time to serve the interest of managers preparing the accounts Outside the regulatory frame work . No flexibility permitted. No scope of creative accounting Accounting standards eliminate choice in accounting policies 2.1. Therefore it is illeagle.

To satisfy the demands of major investors concerning the level of return.` ` ` ` ` ` ` ` ` ` To show a strong market presentation that is warranted To influence the share price. To reassure lenders of finance. . To achieve sales or profit target thereby ensuring that management bonuses are paid. To hide liquidity problems. To hide poor management decisions. To ward off take over bids. To reduce liability for taxation. To encourage investors.

` ` ` ` ` ` ` Sale and lease back Short term borrowings Chasing debtors Bringing sales forward Changing depreciation policy Including intangible assets Changing stock valuation policy .

and Stanford Trust Company Ltd. tagged $ 1 trillion) Enron (tagged billions of dollars). Madoff‡ Stanford International Bank Ltd. Even prostitutes call their profession as noble profession.in US /Antigua /Barbuda) .Almost all mega frauds are clearly abetted by the members of this noble profession -that is what they call. ` ` ` ` ` ` LTCM (Long Term Capital Management . WorldCom (also tagged for billions of dollars) Satyam Computers Services Ltd.

Ramalinga Raju. It is a leading global consulting and is the 4th largest IT outsourcing company of India. In the same year in August. Satyam went public in May 1992 and its issue was oversubscribed 17 times. Satyam Computers was recognized as a Public Limited Company. . . 185 of which are Fortune 500 corporations. Satyam Computers got its first Fortune 500 Client. It serves over 654 global companies.` ` ` ` Satyam Computer Services Limited was set up in the year 1987 by B. In June 1991.

. In 2000 Satyam Computer Services Ltd. Later Satyam Infoway became the first Indian Internet company to be listed on NASDAQ.. In December 1995.` ` ` Satyam was awarded ISO 9001 Certification in March 1995. Satyam Infoway was incorporated. In May 2000 Satyam became the first organization in the world to launch Customer-Oriented Global Organization training. one of the fastest growing IT companies in the country had taken significant decisions by merging three of its subsidiaries with the parent company and a 1:1 bonus issue.

Satyam announced business continuity center in Singapore. Hungary. Singapore. Japan and Australia. the USA. In 2003. which ironically had received the Golden Peacock Award for Corporate Governance in 2008. working in development centers in India. the first of its kind outside India. Malaysia. one of India¶s best known IT companies. Canada. In May 2001 Satyam was listed on New York Stock Exchange. In 2005 -Satyam ranked 3rd in Corporate Governance Survey by Global Institutional Investors. .` ` ` ` ` In March 2001 Satyam became first ISO 9001:2000 Company in the world as certified by BVQI.000 employees on its rolls. China. the UAE. Satyam Computers' network is spread over 55 countries across 6 continents. the UK. Satyam. Satyam had nearly 40.

books of subsidiaries reflecting true performance). What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of the company operations grew significantly (annualised revenue run rate of Rs 11. The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify a higher level of operations thereby significantly increasing the costs. and official reserves of Rs 8.` ` ` ` The gap in the balance sheet has arisen purely on account of inflated profits over several years (limited only to Satyam standalone. 2008. .392 crore).276 crore in the September quarter.

announced that it will acquire two group firms . thereby exposing the gap. until the Chairman of the Company Mr Rama Linga Raju resigned on the 7th of January after faxing to a stock exchanges a long confession letter stating that he did not make even a single Rupee from the whole mess. It was like riding a tiger.Maytas properties and Maytas Infrastructure. Maytas' investors were convinced that this is a good divestment opportunity and a strategic fit. ` ` ` ` ` .So after this announcement they started to raise their voices against the deal .` Every attempt to eliminate the gap failed. As the promoters held a small percentage of equity. the concern was that poor performance would result in the takeover. This deal is not profitable for investors . the stock dropped 50%. Satyam Computers had on December 16. 2008. The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. not knowing how to get off without being eaten. On December 16th The board of Satyam Computers Ltd unanimously decided to acquire these two companies and claimed to be de risking the core business by going ahead with this unrelated diversification.

An overstated debtors' position of Rs. 376 crore which was nonexistent. An accrued interest of Rs.` 1. An understated liability of Rs. 2. 3. 1. company¶s previous Chairman Ramalinga Raju resigned after notifying board members and the Securities and Exchange Board of India (SEBI) that Satyam's accounts had been falsified. On 7 January 2009.651 crore in the books. 2. 4. 490 crore (as against Rs.230 crore on account of funds was arranged by himself.040 crores as against Rs 5. Raju confessed that Satyam's balance sheet of 30 September 2008 contained: Inflated figures for cash and bank balances of Rs 5.361 crore reflected in the books. .

Raju had been allegedly withdrawing INR 20 crore rupees every month for paying these 13.Operating margins were less than a tenth of the stated rupees 649cr¶s 8.000 as reported earlier and that Mr. The actual number of employees is only 40.000 and not 53. Overstated operating revenues which has resulted in artificial cash and bank balances going up by 588 core. 6.Forieign exchange gain .5. 7.000 non-existent employees.

ACTUAL CASH AND BANK BALANCE Cash and bank balance 321 As per books Inflated of accounts amount Percentage inflated 5361 5040 1570% Inflated figures for cash and bank balances of Rs 5.361 crore reflected in the books. .040 crores as against Rs 5.

Accrued interest 376 An accrued interest of Rs. . 376 crore which was non-existent was shown.

crore in t e books). .67% An overstated debtors' position of Rs.ACTUAL DEBTORS Debtors 2161cr As per book of accounts 2651cr Overstated Debtors 490cr Percentage inflated 22. crore (as against . Rs.

OVERSTATED 490 CRORES. .ACTUAL DEBT WAS 2161. INFLATED 5040 CR. NO ACCRUED INTEREST 376.34 CR. ACTUAL CASH IN BANK WAS 321 CRORES.

.230 crore on account of funds was arranged by himself. 1.UNDERSTATED LIABILITY 1230 An understated liability of Rs.

1 6 Cr   . 1.040 + 76 + 490 (Rs.U DERSTATED LIABILITY 12 0 Cr.RAJU .2 0 Cr Rs. Which was ARRA GED BY MR. Cr) Rs. 7.

Actual revenues As per books Overstated of accounts amount Percentage inflated Revenues 2112 2700 588 3% .

Actual operating margin Operating margin 61 As per book of accounts Inflated amount Inflated percentage 649 588 24% .

5% 13000 The actual number of employees is only 40.000 and not 53.000 non-existent employees.Actual no of employees Employees 40000 As per book of accounts 53000 Inflated no¶s Percentage inflated 32. Raju has been allegedly withdrawing INR 20 crore rupees every month for paying these 13.000 as reported earlier and that Mr. .

INTANGIBLE ASSETS .

000 employees.000 employees working for Satyam who were valued collectively Rs 65.600 approximately. each employee of Satyam was valued at Rs 1.53 crores or Rs 15.668 crores.30 million rupees or US$ 332. . If you divide this sum by 43.HR VALUE There were about 43.

` The reports say Satyam books have been overstated by Rs 5. leading to an inflated stock price that helped the top management make money. .000 crore.000 to Rs 6.

Bank of Baroda. So was this a total lapse in supervision or were the bank statements forged? If the auditors were conned. They check bank statements and certificates.` ` ` ` ` Auditors do bank reconciliation to check whether the money has indeed come or not. HDFC Bank.ICICI Bank. etc . it means that either the bank statement and certificates were forged Satyam's banks -.

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Shareholders Public Directors SATYAM Competitors Customers Emplo ees .

An accounting fraud was the last thing investors in India would have imagined as a trigger for a reversal in investor sentiment. . The share prices fell down to 30 (approximately) in a matter of a day.3%. The share prices of Satyam saw a sharp fall after Raju¶s confession. Satyam shares fell nearly 78%. This scam is likely to affect the image of Indian companies among foreign portfolio investors.Immediate Market Reaction: Sensex stock index dropped 7.

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` Mahindra Satyam has tried immensely hard not to go down the same road that Satyam went. We see that Mahindra Satyam is definitely one company which has learnt from the Satyam Scandal. . but they do have a set of well formulated rules and regulations covering almost every aspect including fraud. The company does not have a fixed vision and mission statement.

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