Accounting fraud case study on

Submitted to MR Aman mehta

Submitted by Ibrahim kannodwala

 INTRODUCTION

 Satyam Computers was founded in 1987.

 It converted into Public Ltd Co. in 1992.

The company offers consulting and information

technology services spanning various sectors.

Mahindra Satyam is overall ranked #153

by Fortune India 500 in 2011.

Satyam's network covers 66 countries and 53000

employees across six continents. It is listed in BSE,
NSE, NYSE
 He is Ramalinga Raju born on September 16, 1954. A
traditional agricultural family of the KSHATRIYA (RAJU)
Community of Andhra Pradesh.

 He founded Satyam Computers and was its Chairman

until January 7, 2009 when he resigned from the Satyam
board after admitting to corporate fraud.
History
•He was first businessman in the field of
construction and textiles.
•Raju founded Satyam in 1987.
•He started an satyam computers with 20 employees
in 1987.
• Satyam was listed in INDIAN STOCK EXCHANGE
in 1991.
•Listed in NEW YORK STOCK EXCHANGE in 2001.
• Satyam was listed in UNESCO(Amsterdam) in
2008.
• There were 52000 employees working in Satyam
in September 2008
ACHIEVEMENTS
•2007:- BECOMES THE 1ST ASIAN
COMPANY TO FEATURES IN THE TRAINING
MAGAZINE’S LIST OF TOP 125 COMPANIES
FOR LEARNING,

•2008:-WON CORPORATE GOVERNANCE

(INCLUDING GOLDEN GLOBAL AWARD
TWICE) Top-50 Marketers Award, under
the Resurgent Marketers category for
2010 by Pitch India

•2011:-Mahindra Satyam BPO honored

as “India’s Most Customer-Responsive
BPO Company” AGC Networks The
Economic Times, Ernst & Young and
Nielsen
•And the list goes on……..
 People Behind This Scam
•Ramalinga Raju : Satyam former chairman
•B Rama Raju : Brother of Ramalinga
Raju
•V Srinivas : Managing Director
Ex-Chief financial
•S Gopalakrishnan:
officer...
•Talluri Srinivas : Price Waterhouse Auditor
 The Scam

1. Raju and his brother, B Rama Raju, were arrested by the Andhra
Pradesh police on charges of breach of trust, conspiracy,
cheating, falsification of records.
2. Raju has mislead various investors.
3. Raju had also used dummy accounts to trade in Satyam's
shares.
4. He has violated the insider trading norm.
5. Funds from Satyam were diverted to Mayas
6. On 22 January 2009, CID told in court that the actual number of
employees is only 40,000 and not 53,000 as reported earlier and
that Mr. Raju had been allegedly withdrawing INR 20 carore
rupees every month for paying these 13,000 non-existent
employees.
 Raju wanted to take over his MAYTAS INFRA and
MAYTAS PROPERTIES.(company of his sons).
He was blamed that he was using the funds of the
investors for the family business.

There were allegations that funds from Satyam

were diverted to Maytas, causing the
Government agencies to verify the infrastructure
company’s records as well. .

,
HOW DID IT HAPPENED?

FLOATED TWO OTHER COMPANIES

FOR THEIR OWN PURPOSE .
WITHOUT TAKING PERMISSION OF
THE SHAREHOLDERS.
FAILED TO REPAY THE LOANS.
TRANSFER OF MONEY.
 UNDERSTANDING THE SCAM!
THE BALANCE SHEET AS OF SEPTEMBER 30, 2008
SHOWED-
INFLATED (NON-EXISTENT) CASH AND BANK BALANCES
OF RS. 5040 CRORE (AS AGAINST RS. 5312 CORE
REFLECTED IN THE BOOKS)
AN ACCRUED INTEREST OF RS. 376 CRORE WHICH IS
NON-EXISTENT
AN UNDERSTATED LIABILITY OF RS.1230 CRORE ON
ACCOUNT OF FUNDS ARRANGED BY BR RAJU.
PwC - Partners in Crime ???

1. Previous record -
•Satyam has also been accused of frauds in 2001 and
2003.
•No importance was given to this.
2. Getting third party evidence -
•No bank confirmation on fixed deposits
•Accrued interest(fixed deposit)
•Debtors confirmation
3. Factors overlooked -
•Changing of accounting years
•Huge debt despite cash surplus
 WHY DID RAJU CONFESS

•The gap in the balance sheet reached

unmanageable proportions and could
not be filled anyhow in future.

•The whistle blower whose email to a

Satyam board member triggered a
chain of events .
 PROBABLE REASONS
PRESSURE TO MEET Growing Competition
EXPECTATION Threat of being overtaken

OVERCONFIDENCE On his ability

Siphoning of funds
PERSONAL BENEFITS Salary of non-existent 13000
employees

“Since about seven years we wanted to show more income in

the accounts to avoid others from involving in the company
affairs and any possible hostile acquisition.
 Action Taken:
New board of directors were appointed.

Disclosure of pledged securities.

Increased financial accounting disclosure.

Adoption of international standards.

Creation of new corporate code of conduct

by Ministry of Corporate Affairs.
Steps taken by ICAI.
Consequences

Before the scandal it’s share price was Rs 300 in oct.2008. Just after this
scandal the share price go down to Rs 6.30.

On 10 January 2009, the Company Law Board decided to bar the current
board of Satyam from functioning.

Bank of America and State Farm Insurance terminated its engagement

with the company.

Credit Suisse suspended its coverage of Satyam. The Credit Suisse

Group AG (SIX: CSGN, NYSE: CS) is a Swiss multinational financial
services company headquartered in Zurich, Switzerland.
Jobs of over 50,000 technocrats were at risk.
Country`s booming economy was at risk.
The GDP fell by 0.4%.

I.T sector suffered a downturn.

India`s global image was tarnished.
Indian stock market fell dramatically.
Satyam Now

 Ramalingam Raju along with 2 other accused of

the scandal, had been granted bail from
Supreme court

 Appointing New Board. Board appointed by

Government.Tech Mahindra wins bid for
Satyam scam.
 As an Accountant
my veiws

More scandals like Satyam can be avoided

if-

1.If auditing firm is honest.

2.SEBI plays an active role.
3. Periodic review of legal compliance
reports by independent directors.
T
H
A
N Presented By –

K Ibrahim kannodwala
B.COM.L.L.B(HONS)

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