Case Study on Satyam Computers Ltd

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Date Submitted: 08/24/2011 06:12 AM

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Historical Presentation of Satyam Computer Ltd Scandal:

It has been almost 2 years now that Ramalinga Raju then the CEO of Satyam Computers Ltd admitted the guilt of creating fake invoices and manipulating the accounts to show profits. Ramalinga Raju who could have found a seat beside Bill Clinton as a business tycoon is now postured to be a villain in the corporate governance of the world. He emotionally admitted in his letter of the fraud of the accounts and inflating Rs. 5040 crores. Raju inflated the account for increasing the price of shares so that he and his accomplices get maximum profits.

Interestingly Satyam has bagged Golden Peacock award for best corporate governance by World Council for Corporate Governance only a few years ago. The company CEO surrendered himself by admitting being guilty. The full text of the letter of Raju of admitting the crime “"It is with deep regret and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice:

1. The Balance Sheet carries as of September 30, 2008,

a) Inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 crore reflected in the books);

b) An accrued interest of Rs 376 crore, which is non-existent

c) An understated liability of Rs 1,230 crore on account of funds arranged by me;

d) An overstated debtors' position of Rs 490 crore (as against Rs 2,651 reflected in the books);

2. For the September quarter(Q2) we reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore(24 per cent of revenue) as against the actual revenues of Rs 2,112 crore and an actual operating margin of Rs 61 crore

This has resulted in artificial cash and bank balances going up by Rs 588 crore in Q2 alone. The gap in the balance sheet has arisen purely on account of inflated profits over several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). What started as a...