Academic Year 2023 – 2024

School of Management

Name of Assignment: Report on Satyam Computers Auditing

scam

Submitted By:
Japjee Singh
(BCMN1CF21012)

Submitted To:
Amol Mutatkar sir
Introduction
In January 2022, Satyam Computer Services, an Indian IT services
company, was involved in one of the most significant corporate frauds
in India. The scandal came to light in 2009 when the company's
founder and then chairman, B. Ramalinga Raju, admitted to
manipulating the company's financial statements to the tune of about
$1.47 billion.

The fraud involved inflating the company's profits and assets, creating
fictitious cash balances, and showing non-existent interest-bearing
deposits. The revelation of the fraud had severe consequences,
including a sharp drop in Satyam's stock price, legal actions against
Raju and other key executives, and a subsequent takeover of the
company by Tech Mahindra.

The Satyam Computer Services scandal was India's largest corporate

fraud until 2010. The founder and directors of India-based outsourcing
company Satyam Computer Services, falsified the accounts, inflated
the share price, and stole large sums from the company. Much of this
was invested in property. The swindle was discovered in late 2008
when the Hyderabad property market collapsed, leaving a trail back to
Satyam.[1] The scandal was brought to light in 2009 when chairman
Byrraju Ramalinga Raju confessed that the company's accounts had
been falsing

For many years Satyam accounts showed profits that had never
existed, cash at the bank that did not exist, which inflated the share
price. Raju and friends then sold shares. The accounts also showed
$3m of "salary payments" to people who did not exist. These in fact
went to board members. The falsified accounts were used to obtain
cheap loans in the USA which were stolen by Raju and never entered
into the accounts. Much of the money was squandered in real estate
deals in Hyderabad. When the property market collapsed in 2008, the
money vanished and whistle-blowers began to be heard. A failed
 attempt by Raju to use Satyam to buy a property company led to the
scandal being uncovered.

Case Details
The Satyam Computer Services fraud case was a major corporate scandal in India,
and it involved significant financial misstatements and accounting irregularities.
Here are some key details about the case:

Disclosure of Fraud:
In January 2009, B. Ramalinga Raju, the founder and then chairman of Satyam
Computer Services, confessed in a letter to the company's board that he had been
inflating the company's profits for several years.

Nature of Fraud:

The fraud involved the manipulation of financial statements, including the inflation of
revenue, profits, and cash balances.
Raju admitted to creating fictitious assets and understating liabilities, leading to a
significant overstatement of the company's financial health.
Impact:

The revelation of the fraud had severe consequences for Satyam, including a sharp
decline in its stock price and a loss of investor and client confidence.
The scandal raised concerns about corporate governance and the effectiveness of
auditing and regulatory oversight in India.
Audit Firm Involvement:

PricewaterhouseCoopers (PwC) was the audit firm responsible for auditing Satyam's
financial statements.
The scandal prompted scrutiny of PwC's role in detecting and preventing the
fraudulent activities.
Legal Actions:

Ramalinga Raju and his brother Rama Raju, who was the managing director of
Satyam, were arrested by Indian authorities.
Several other executives were also implicated and faced legal consequences.

Tech Mahindra Takeover:

To stabilize the situation and restore confidence, the Indian government appointed a
board of directors to oversee Satyam.
Eventually, Tech Mahindra acquired a controlling stake in Satyam through a
competitive bidding process.

Regulatory Changes:

The Satyam scandal prompted regulatory authorities in India to reassess and

strengthen corporate governance standards, accounting practices, and auditing
oversight.

Financial Impact on Satyam:

Satyam's financial health was severely affected by the fraud, leading to a
loss of investor confidence, erosion of market capitalization, and a decline
in business.

Share Price Fluctuations:

The revelation of the fraud resulted in a significant drop in Satyam's stock

price. The stock, which was part of the benchmark indices, experienced
extreme volatility during the crisis.

Client and Employee Impact:

Satyam's clients were adversely affected, and there was a risk of losing
contracts and business relationships. The uncertainty surrounding the
company's future led to concerns among employees.

Global Ramifications:

The Satyam scandal garnered international attention due to the global

nature of the IT industry. It raised questions about corporate governance
practices not only in India but also in other parts of the world.

Rebuilding Trust:

After the acquisition by Tech Mahindra, efforts were made to rebuild trust
in Satyam's operations. This included transparency initiatives, improved
corporate governance, and measures to reassure clients and investors.

Regulatory Reforms:

The Satyam scandal prompted regulatory authorities in India to revaluate

and strengthen corporate governance norms. The Companies Act was
 subsequently amended to enhance transparency, accountability, and the role
of auditors.

Impact on Indian IT Industry:

The fraud case had repercussions for the reputation of the Indian IT industry
as a whole. It emphasized the importance of ethical business practices,
corporate governance, and effective regulatory oversight.

Long-Term Consequences:

The Satyam scandal left a lasting impact on the Indian corporate landscape,
influencing how companies are audited, governed, and regulated. Lessons
learned from the case contributed to ongoing efforts to improve corporate
transparency and accountability.

Ramalinga Raju's Sentencing:

In 2015, B. Ramalinga Raju, along with his brother Rama Raju and other accused
executives, was sentenced to seven years in prison by a special court in
Hyderabad, India.

Financial Restatements:

After the revelation of the fraud, Satyam had to undergo a complex process of
financial restatements to rectify the manipulated financial statements.
Restated financials provided a more accurate picture of the company's
financial position.

Satyam's Rebranding as Mahindra Satyam:

Following the acquisition by Tech Mahindra, Satyam was rebranded as Mahindra

Satyam in 2012. This rebranding aimed to distance the company from the tainted
image associated with the fraud and emphasize a fresh start.

Integration with Tech Mahindra:

The integration of Mahindra Satyam with Tech Mahindra aimed to create a

stronger and more resilient entity. The combined company sought to leverage
synergies in the IT services sector.

Corporate Governance Reforms:

 The Satyam scandal prompted significant reforms in corporate governance
practices in India. Regulatory bodies, such as the Securities and Exchange Board of
India (SEBI), introduced measures to enhance board independence, transparency,
and auditor accountability.

Auditing Reforms:

The scandal prompted a reevaluation of auditing practices in India. There were

discussions on strengthening the role of auditors and improving their ability to
detect financial irregularities.

SEBI Action:

The Securities and Exchange Board of India (SEBI) barred B. Ramalinga Raju and
other individuals involved in the Satyam case from accessing the securities market
for a certain period.

Global Impact on Outsourcing Perception:

The Satyam scandal had broader implications for the perception of outsourcing and
offshoring services. It raised concerns among global clients about the risks
associated with outsourcing to companies based in emerging markets.