Professional Documents
Culture Documents
Satyam Corporate Fraud
Satyam Corporate Fraud
5. Conclusions
Recent corporate frauds and the outcry for transparency and honesty in reporting have
given rise to two outcomes. First, forensic accounting skills have become very crucial in
untangling the complicated accounting maneuvers that have obfuscated financial
statements. Second, public demand for change and subsequent regulatory action has
transformed CG scenario across the globe. In fact, both these trends have the common
goal of addressing the investors’ concerns about the transparent financial reporting
system. The failure of the corporate communication structure, therefore, has made the
financial community realize that “there is a great need for skilled professionals that can
identify, expose, and prevent structural weaknesses in three key areas: poor corporate
governance, flawed internal controls, and fraudulent financial statements [36]. In
addition, the CG framework needs to be first of all strengthened and then implemented
in “letter as well as in right spirit”. The increasing rate of white-collar crimes, without
doubt, demands stiff penalties and punishments.
Perhaps, no financial fraud had a greater impact on accounting and auditing profession
than Enron, WorldCom, and recently, India’s Enron: “Satyam”. All these frauds have led
to the passage of the Sarbanes-Oxley Act in July 2002, and a new federal agency and
financial standard-setting body, the Public Companies Accounting Oversight Board
(PCAOB). It also was the impetus for the American Institute of Certified Public
Accountants’ (AICPA) adoption of SAS No. 99, “Consideration of Fraud in a Financial
Statement Audit” [37]. But it may be that the greatest impact of Enron and WorldCom
was in the significant increased focus and awareness related to fraud. It establishes
external auditors’ responsibility to plan and perform audits to provide a reasonable
assurance that the audited financial statements are free of material frauds.
As part of this research study, one of the key objectives was “to examine and analyze in-
depth the Satyam Computers Limited’s accounting scandal by portraying the sequence
of events, the aftermath of events, the key parties involved, major reforms undertaken
in India, and learn some lessons from it”. Unlike Enron, which sank due to “agency”
problem, Satyam was brought to its knee due to “tunneling”. The Satyam scandal
highlights the importance of securities laws and CG in emerging markets. There is a broad
consensus that emerging market countries must strive to create a regulatory
environment in their securities markets that fosters effective CG. India has managed its
transition into a global economy well, and although it suffers from CG issues, it is not
alone as both developed countries and emerging countries experience accounting and CG
scandals. The Satyam scandal brought to light, once again, the importance of ethics and
its relevance to corporate culture. The fraud committed by the founders of Satyam is a
testament to the fact that “the science of conduct is swayed in large by human greed,
ambition, and hunger for power, money, fame and glory”. All kind of scandals/frauds
have proven that there is a need for good conduct based on strong ethics. The Indian
government, in Satyam case, took very quick actions to protect the interest of the
investors, safeguard the credibility of India, and the nation’s image across the world.
Moreover, Satyam fraud has forced the government to re-write CG rules and tightened
the norms for auditors and accountants. The Indian affiliate of PwC “routinely failed to
follow the most basic audit procedures. The SEC and the PCAOB fined the affiliate, PwC
India, $7.5 million which was described as the largest American penalty ever against a
foreign accounting firm” [38]. According to President, ICAI (January 25, 2011), “The
Satyam scam was not an accounting or auditing failure, but one of CG. This apex body
had found the two PWC auditors prima-facie guilty of professional misconduct”. The CBI,
which investigated the Satyam fraud case, also charged the two auditors with “complicity
in the commission of the fraud by consciously overlooking the accounting irregularities”.