Sat Yam's Scandal

Satyam

As an emerging economy, India has taken the necessary steps to gain international credibility among investors worldwide by adopting and implementing regulations and financial reporting systems similar to those seen in leading world markets. However despite those measures, India like any developed economy has not been immune to corporate fraud. In the wake of India’s largest corporate scandal to date, the CEO of Satyam Computer Services Ltd. admitting to falsifying the company’s accounts among other offenses, we have identified three independent parties that failed in their outlined responsibilities and therefore enabled the scandal to occur. These three parties are the Indian government, the auditors (PricewaterhouseCoopers), and the board of directors of Satyam. After presenting the failings of these three parties, this paper will examine the effects that the Satyam scandal has had on the Indian financial reporting system.

What Happened

On January 7, 2009 the chairman of Satyam Computer Services Ltd Ramalinga Raju resigned from his position and issued a statement admitting to falsely handling the books and reports handed out to the independent auditors, PricewaterhouseCoopers (PWC). The fraud was triggered after a board of directors (BOD) meeting in which Raju attempted and managed to convince the board members of acquiring two affiliated companies; Maytas Infra and Maytas Properties, run conveniently by Raju's two sons. This acquisition would have allowed Raju to hide the inflated reports, by backing the claims with real assets which in fact only increased the liabilities and the debt of the company.

However the public who held 47% of the Nasdaq-listed company, was less lenient towards persuasion on this matter, thus sparking a 50% drop in the shares after the acquisition announcement. Satyam immediately canceled the acquisitions, and Raju, no longer able to hide the fraud confessed three weeks later.

Raju's confession included:

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