Satyam Analysis...

Presented by
Sudhir Khare Gulnaz Mahadik Ritika Khare Nitin Arvindakshan Prashant Salvi Nisha Singh Geetanjali Ashok 28 31 32 36 41 51 20

Ramalinga Raju. Few milestones: 1987 Incorporated as private limited company in 1987 1991 Recognized as a public limited company. debuts on the Bombay Stock Exchange (BSE) IPO oversubscribed by 17 times 1993 Satyam signs joint venture with Dun & Bradstreet for IT Services Joint venture with GE announced . the New York Stock Exchange and Euronext. The company offers information technology (IT) services spanning various sectors.Satyam Computer Services Ltd was founded in 1987 by B. and is listed on NSE. BSE.

2010 (South Africa) and 2014 (Brazil) Announces acquisition of UK-based Nitor Global Solutions Limited Becomes the first Asian company to feature in the Training Magazine¶s list of Top 125 companies for learning .1999 Satyam Infoway (Sify) becomes the first Indian Internet company listed on NASDAQ Satyam forms joint venture with TRW Inc. Presence established in 30 countries 2007 Becomes the Official IT Services Provider for the FIFA World Cups.

Satyam Scandal«. Cooking books of accounts .

AN accrued interest of Rs 376 crore is non-existent.651 crore reflected in the books.700 crore revenue and operating margin of Rs 649 crore against actual revenue of Rs2. I HAVE over-stated debtors position of Rs 490 crore (as against Rs 2.Ramalinga Raju. had any knowledge of the situation in which the company is placed.112 crore and margin of Rs 61 crore. we reported Rs2.361 crore) reflected in the books. I HAVE understated liability to the tune of Rs1. chairman ³None of the board members.) FOR sept 2008. .´ I INFLATED (non existent) cash and bank balance of Rs 5. past or present.040 crore(as against Rs 5.230 crore in accounts of funds arranged by me.

PRIOR to quarterly board meetings. Fixed deposits were unreal and fictitious which were managed with an understanding between the audit section and management. CFO ´I was asked specifically to not look into bank statementµ AUDITOR never pointed out any ³deficiencies´ during their discussions.Vadalamani Srinivas. BANK deposit were handled directly by Raju and the CFO was specially asked for ³not to look into it´ ³RAJU and his brother used to take decisions and tell us to do as instructed. ´I do not pay much attention to the details of that balance sheet. VP. Ramakrishna.´ THE CFO admitted that the account were manipulated for about seven years.would prepare the balance sheet.´ .finance.

CAVEAT POSSIBILITY High. This would require matching of revenue With staff strength and salary cost. as there is logic and objective. The assets and liabilities are altered Q2Q to reflect rising income and rig share price.Scenario I Forgery inc The scam team forged invoices to show collection of revenue abroad. showed transfer of money to fixed deposits (FDs) through forged FD receipts and reflected all this in the final accounts. Would also require forging of TDS certificates for income from FDs. forged bank statement to show inflow of money. .

CAVEAT POSSIBILITY Very high . property. The books continued to reflect the FDs as you don·t need to surrender certificate anymore. money did come through the banking channels and was transferred to long term FDs and reflected in the books.Scenario II True Lies Satyam did make money on export. Siphoned money was use to acquire land. Raju raised invoices for export abroad. pay for political patronage for Maytas Infra and Maytas properties. Once the FDs were recorded in the books the deposits were dissolved and money transferred to multiple accounts. This again require forging of TDS certificates for accrued interest and connivance of auditors.

Besides co-opting auditors and forging TDS certificates. Have to show staff strength to match revenues or ramp up operating margins. . shows it in his book and transfers it to FDs to be dissolved latter. is in sync with whispers of pressure to pay politicians and patronage. brings it as invoiced billings.The money transferred to multiple accounts is siphoned to repatriate politicians· money and for funding the activities of Maytas. CAVEAT POSSIBILITY Very very high.Scenario III Hawala Inc Raju receives political slush money abroad.

76 (-)415.70 134. Allotment c. Share capital (share application money . SOURCES OF FUNDS 1. Loan Funds a.80 ______ 8794.23 2. Reserves and surplus 2.49 234.47 30.98 _______ 30. Shareholders funds a.80 _______ 1217. pending) b.70 2.28 _______ 1230.49 1464.76 8392. unsecured loans AS ON 30.Balance sheet of Satyam computer ltd. secured loans b.09.00 ________ ____________________ .08 ADJUSTED BALANCE SHEET ADJUSTMENT S 134.00 _______ 1230.

376 Crores which is non-existent Understated liability of Rs.61 Crores ( 3% of revenues). 588 Crores in Q2 alone.3% ‡ Satyam shares fell nearly 78% 12 .040 Crores Confession on 7th Jan¶09 ‡ Inflated ‡ ‡ ‡ ‡ Accrued interest of Rs. 2700 Crores and an operating margin of Rs. 30. 2.112 Crores and an actual operating margin of Rs. 5. 2008: Immediate Market Reaction: ‡ Sensex stock index dropped 7. 1.Raju¶s Cash and Bank balance of Rs. This has resulted in artificial cash & bank balances going up by Rs. 490 crores For the September Q2.230 Crores Over stated debtors position of Rs. The Balance Sheet carries as of September. 649 Crores as against the actual revenues of Rs. reported a revenue of Rs.

000 employees Enron ‡ Accounting books were manipulated in conspiracy with its auditor Arthur Andersen ‡ NYSE tanked 0.9% when Enron filed for bankruptcy ‡ Government created Sarbanes Oxley Act ‡ US S.E.Satyam Vs Enron Vs Satyam ‡ ‡ ‡ ‡ ‡ Malpractices amounting worth USD 1. David Myers and Buford ³Buddy´ Yates (Director of General Accounting) used fraudulent accounting methods to mask its declining earnings ‡ Arthur Andersen withdrew its audit opinion for 2001 ‡ Government created Sarbanes Oxley Act 13 Worldco m .2 % when Raju announced of the fraud Government appointed new auditors ± KPMG and Deloitte Government guaranteed safety of jobs for all 53.3 billion Masterminded by its founder-owner R Raju (CEO) and his brother SENSEX tanked 7.C. revoked CPA license of Arthur Andersen ‡ Scott Sullivan (CFO).

21 ADJUSTMENT S 1381.64 118. 4.64 118.21 (differenc e) ________ 7577.34 5775. cash c. Loans AS ON 30.62 376.10 618.98 _________ 1217. Fixed assests Investments Tax Current assests a.22 2166. 2.75 2651. accrued interest d.34 502.05 901.05 6676.62 502.7 LIABITIES Net current assests TOTAL APPLICATION OF FUNDS _______ 8794.75 490.22 2166.64 118.00 272.75 2161. sundry debtors b.10 618.36 5040 376. 3.08 1381.APPLICATION OF FUNDS 1.09.49 ADJUSTED BALANCE SHEET 1381.28 .10 618.36 5312.

Where is the money??? .

Securities etc. 2) Was the bank balance invested properly and-where all was it invested ±MFs. Inflated 5040 Cr. risk management. . auditors should checked whether the cash in bank was available or not. Bonds. 4) Why did company have huge creditors and balance at the same time. 3) Whether the internal control mechanisms are in place ± internal audits. Actual ± 321 Cr. statuary compliance.Questions to the auditors ? 1) If the company claims it has cash in its bank.

. 6) Are the profit margin abnormal compare to industry norms? 7) Check if there has been a quantum jump in wealth.cont«« ? 5) Look into why the company is not taking benefits and negotiating the price. 9) Undertake Physical verification of assets owned by the company. 8) Carry out ratio analysis of the figures in the organization. previous year & industry standards.

B. Mainak . Manoharan S. Achuthan former presiding officer of the Securities Appellate Tribunal Tarun Das Former president CII T.New board of director formation by company low board and Ministry of company affaires Deepak S. Parekh Executive Chairman HDFC group Kiran Karnik president of Nasscom C.N.

Bidders for Acquisition Spice group Tech Mahindra Hinduja group L&T GE .

Finally Satyam acquired by tech mahindra«. .

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