SATYAM ACCOUNTING

SCANDAL
A Case Study
BACKGROUND HISTORY
OF SATYAM
ABOUT
SATYAM’s
History
Satyam Computer Services Ltd.
Was incorporated by the two
brothers. B Rama Raju and B
Ramalinga Raju as a private
limited company for providing
software development and
consultancy services to large
corporations in 1987.
About SATYAM’s History

■ In 1997, it was selected by the World

Economic Forum as one of India’s most
remarkable and rapidly growing
entrepreneurial companies.
■ In 2005 was ranked 3rd in Corporate
Governance Survey by Global Institutional
Investors.
About SATYAM’s History

■ As of 2009, Satyam
– Was the 4th fastest growing IT company in India
– Had 9% market share
– Had 53,000 employees
– Revenue of $2.1 Billion
– First Indian company to be listed on three
international exchanges: NYSE, DOW, EURONEXT
HOW THE SCAM
UNRAVELLED
Ramalinga
Raju’s Letter

On January 7, 2009, Ramalinga

Raju disclosed in a letter to the
Board of Director’s that he had
been manipulating the company’s
accounting numbers for years
which are estimated to range from
2003-08.
HOW THE SCAM UNRAVELLED

■ Mr. Raju claimed that he overstated the assets on Sayam’s

balance sheet by $1.47 billion. Nearly $1.04 billion in bank
loans and cash that the company claimed to own was non-
existent. Satyam also underreported its liabilities.
■ This was done to make it appear to be a far bigger
enterprise than it actually was. They also sewed up deals
with fictitious clients and introduced over 7,000 fake
invoices to record sales that simply didn’t exist. Profits too
were padded up to show healthy margins.
HOW THE SCAM UNRAVELLED

■ Satyam was reporting sales of over 5,200 crore in

2008-2009, when it was in reality making about
4100 crore. Its operating profit margins were shown
at 24% when they were actually at 3% and its
handsome profits on paper covered up for real-life
losses.
Fabricated Balance Sheet and Income
Statement As of September 30, 2008
THE ANATOMY OF
SATYAM FRAUD
Methodology used by Satyam to commit
accounting fraud
■ Maintaining Records
■ Fake Invoices and Bills
■ Web of Companies
■ Falsified Bank Statement
AFTER EFFECTS OF THE
CONFESSION
Share Prices and Markets

■ Satyam Shares lost 77% to end at Rs 40.25 from Rs.

175
■ BSE closed at 9586.88, sharply down 749.05 points
or 7.25%
■ BSE Midcap and BSE Smallcap also affected
Re-appointment of Board of Directors

■ The Company Law Board decided to bar the current

board of Satyam from functioning and appoint 10
nominal directors.
■ Among 6 new board of directors appointed were:
noted banker Deepak Parek, former NASSCOM chief
Kiran Karnik and former SEBI member C. Achuthan
Investigations and Punishment

■ Satyam is barred from doing business with the World

Bank for eight years. The World Bank alleges that
Satyam was involved in date thefts and staff bribery.
Shares fall to record low in four years.
■ Raju and his younger brother Rama Raju are
arrested by police, while the Indian government
steps in and disbands Satyam board.
 FAILURE OF CORPORATE
GOVERNANCE AT SATYAM
Shareholders

■ Right to get information from the organization, such

information could be with respect to the merger and
acquisition and the financial statement and records.
■ Shareholders expect transparent dealing in an
organization.
Employees

■ Collapse of any organization’s reputation has a

direct impact on the employee’s job.
■ As per the case, employees were shown with a
inflated figure. The excess of employees in the
organization were kept under VIRTUAL POOL who
received just 60% of their salaries and several were
removed.
Clients

■ Loss of trust and reviewed their contracts, preferring

to go with other competitors.
■ Several global clients, like Cisco, Telstra and World
Bank cancelled their contracts with Satyam,
concerned over the project continuity, confidentiality
and cost overrun.
Bankers

■ Concerned about recovery of financial and non-

financial exposure and recalled facilities.
Government

■ Image of the nation and IT sector affecting faith to

invest, or to do business in the country.
■ Violation of rules and framework set up for working in
the markets and fraudulent actions taken by the
company.
■ Tax evasion by falsely showing tax paid in foreign
countries and hence getting concessions from the
government.
WHAT NOW?
The rest of the stories….

■ June 2009: Tech Mahindra, owned by the Mahindra

Group, and Satyam merge to form India’s fifth
largest IT exports company. The merged entity is
called Mahindra Satyam.
■ November 2011: Raju gets bail from India’s
supreme court after the CBI fails to file charge
sheet.
The rest of the stories….

■ July 2014: India’s market regulator SEBI bars Raju from

the capital markets for 14 years, and also seeks Rs
1,849 crore as fine.
■ April 2015: The special CBI court holds Raju and nine
other officials guilty of cheating. Among those held
guilty are two former partners at PwC. “We are
disappointed with this verdict given by the court of the
Additional Chief Metropolitan Magistrate at Hyderabad”,
accounting firm PwC said in a statement.