I. Case Synopsis a. The company began in 1987 as a private limited company, then converting to a publicly traded company in 1992. Throughout the next several years, Satyam began expanding to other countries though joint ventures, partnerships, and greenfield investments (Gaur & Kohli, pg 1) b. In 1998, Satyam merged with different subsidiaries and as a result was listed on the NASDAQ. Satyam grew even further by entering into long-term contracts with corporations such as Microsoft and Yahoo!. c. Throughout the 2000’s, Satyam won numerous awards for its corporate governance practices. d. Based on figures from 2008, Satyam was India’s 4th largest software development and IT consulting company. e. Satyam had a high level of ownership between …show more content…
In 2009, a sale for 51% of stake in Satyam was put through a global bidding process. Tech Mahindra won the bid, paying 17.57 billion rupees for a 31% stake. II. What were the circumstances under which Satyam’s fraud was exposed? i. The circumstance for the exposure to the fraud was Raju’s acquisition attempt. Both of the companies were owned by his two sons, with the companies valuing at US$1.3 billion and US$300 million. There was immediate resistance from investors towards this deal. Although Satyam broke off the deal, they couldn’t undue the damage. b. What do you think were the reasons for the fraud? i. The reasons for fraud all surrounded Satyam attempted to meet investor’s expectations. As Raju wrote in his letter to the board of directors, the gap between actual operating profit and the one listed in the books began to grow exponentially. As mentioned earlier, promoters owned a small percentage of Satyam, where foreign and domestic investors owned the greatest percentage. If Satyam slightly revealed its poor performance, it could result in a takeover revealing the company’s poor …show more content…
Assess the responsibility of audit committees as well as internal auditors in relation to the Satyam scandal. i. The audit committee a part of the board of directors plays an important role in preventing fraud. They are directly responsible for overseeing the work of any public accounting firm, such as PwC, employed by the company. They also must preapprove all audit services provided by the auditors. ii. Objectivity also needs to be evaluated to make sure the internal audit is reliable. The internal audit needs to be free of conflicting responsibilities as well b. Do you think making regulatory changes would help in preventing such fraud? i. There can only be so many changes to the audit process to prevent fraud. Regardless of the regulations that one may enforce, the audit process still comes down to human opinion. In a case like Satyam, an auditor performing their job to the highest standard would have most likely caught Satyam eventually. As stated in the case, misstatement of cash is one of the easiest fraudulent activities to catch. Simply requesting bank statements verifies the cash that the company actually owns. VI. Legal and Ethical Implications a. Legal
When it comes to the audit objectives, the public and the auditing profession maintain varying expectations. The public expects the prevention of fraud to be the auditor’s responsibility. However, the auditors believe that they are responsible for fraud detection, but not obliged to find all of it. In addition, the public views the fraud by the characteristics displayed by management and employees. For example, WoolEx Mills’ management wanted to exude a prevailing financial position and to uphold reputations. By committing financial statement fraud, it made the company look successful even though Sales and cash flows were decreasing. The public would view these particular characteristics as pressures to why the company committed fraud. Greed, recognition, and influences also impacted the public’s view of Wool Ex Mills’ fraud scheme. The CEO used authority to influence employees to take part in the fraud scheme. The public would see that the CEO utilized power to manipulate shareholders, which impacted their trust with WoolEx Mills (Cohen, Ding, Lesage, & Stolowy 2015) (Krishnan & Shah
In 1952, John Rigas paid $100 for a cable TV franchise in Pennsylvania and ran it as a small family business with only 25 customers. (Bennett, Thau, Scouten, 2005) The business was expanding and in 1972, the company was officially incorporated as Adelphia Communications Corporation. Shortly after, in 1986, Adelphia started publicly trading on the NASDAQ stock exchange. In the 1990s, in the light of a weakening cable industry, Adelphia began expanding into Internet access, paging services and business telecommunications for which it used cash, stock and debt to finance numerous acquisitions. (Bennett, et al) Adelphia’s fraud was finally discovered in March 2002, when Tim Rigas, the company’s CFO revealed that Adelphia owes $2.3 billion in loans made to partnerships run by the Rigas family. This revelation resulted in SEC’s investigation that discovered fraud activities which dated as far back as mid-1999. Shortly after, all members of Rigas family resigned from Adelphia. When Adelphia’s fraud was finally discovered, in March 2002, the price of its stock went from $28 to 79 cents within a month. (Bennett, et al)
The oversight responsibilities of the board, the CAE lacking of expertise or broad understanding of financial controls and responsibilities, and the understaffed internal audit functions lacking of independence and direct access to the board of directors contributed to the absence of internal controls. To begin with, the board should be retrained to achieve financial literacy to review financial reporting. Other than attending formal meetings, the board of directors should be more involved with the management. For the Audit Committee, the two members who were recruited as acquaintances to Brennahan need be replaced with experts who are more sufficiently knowledgeable about accounting rules beyond merely “financially literate”. Furthermore, the internal audit functions need to expand with different expertise commensurate with the expanded activities of the organization, testing financial reporting rather than internal controls from an operational perspective. The CAE should be more independent and proactive to execute audit plans, instead of following orders from the CFO, and initiate a direct and efficient communication between internal audit and audit
As the rapid growth of capital market, investors have been increasingly relying on auditors to examine the accountability of financial information prepared by management. Auditors are expected to determine if the financial statement is fairly presented. In order to do so, auditors need to detect the material misstatements. Misstatement can be classified into three groups: fraud, errors and illegal acts. Fraud is intentional misstatement while errors are unintentional. Illegal acts can be intentional or unintentional. They are the misstatements that violate laws or governmental regulations (Messier, Glover and Prawitt 2014, 26). In recent years, the increasing number of fraud scandals has weakened investors’ confidence in the capital market.
DRAM but in 1994 got more than 12 percent of market share lot ahead of
In 2002, SEC posted net profits of $5.9 billion, on $44.6 billion in sales, and as a result in 2003 became “the most widely held stock among all emerging market companies”. Unlike other companies who chose to outsource their manufacturing process, SEC remained committed to its core competence, manufacturing (Quelch & Harrington, 2008).
Madura, Jeff. What Every Investor Needs to Know About Accounting Fraud. New York: McGraw-Hill, 2004. 1-156
With the formation of the strategic partnership, China Unicom received considerable capital gains SK bought 7% of the shares of China Telecom in USD 1 billion in China Unicom bonds.This gives the ability to invest in the company or even other business areas and enable growth. Optimize technological networks.
Conflict of interest is a big problem between Enron and its auditing firms. It is believes that Enron’s auditors was hide many information and external auditors never aware or hide the losses in Enron. From audit committees to transparency committees would increase the likelihood that a firm’s key business ricks are transparent to investors (Healy & Palepu 2003, p. 21). Besides, a transparency committee can also help with internal auditor appreciate its primary responsibility lies with the board, not for personal interest and pleasing the leader.
Audit is a process to evaluate and review the accounts and financial statement objectively. We can divide it into internal auditors and external auditors. Internal auditors have a inner knowledge of business process. Auditor has access to the much confidential information and all levels of management. But they may lose their judgement and they are not acceptable by the shareholder. “The overall objective of the external auditors is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to report on the financial statements in acco...
The audit committee plays a crucial role in assisting the board to accomplish its corporate governance and oversight responsibilities in relation to a company’s financial reporting; internal control systems, risk management systems and the internal and external audit functions, along with the integrity and transparency of corporate reporting.
In 2010, it was then privatized and owned by Rightitan and Portwell Investments Limited. The company then went into global expansion plan and was listed in Hong Kong stock market (HKeX:1438) in year 2014. In October 2016, Nirvana Asia Ltd was privatized and delisted from HKEx, CVC Capital Partners (“CVC”) offers $1.1bn deals and became Nirvana’s largest shareholder cited by CVC Press Release (2016).
The fundamental duty of an external financial auditor is to form and express an opinion on whether the reporting entity’s financial statements are prepared in accordance with the relevant financial reporting framework. In discharging this duty, the auditor must exercise “reasonable skill, care and caution” (Lopes, J. in Kingston Cotton Mill Co 1896) as reflected in current legal and professional requirements.
Auditing has been the backbone of the complicated business world and has always changed with the times. As the business world grew strong, auditors’ roles grew more important. The auditors’ job became more difficult as the accounting principles changed. It also became easier with the use of internal controls, which introduced the need for testing, not a complete audit. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. Computers played an important role of changing the way audits were performed and also brought along some difficulties.