Case Study: Satyam

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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

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