Creative Accounting - Satyam
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Transcript of Creative Accounting - Satyam
Creative Accounting Satyam Scam Analysis
Group # 7
AMOL THAKAR (211017) B.V.V SAGAR (211037)
ANKITA AGARWAL (211020) DARPAN GOEL (211039)
ATUL KR. UMAR (211035) ISHA PAROHA (211058)
CREATIVE ACCOUNTING
• Systematic misrepresentation of the true financial figures of a company with the intent to influence readers towards interpretations desired by the authors.
• It is the manipulation of financial numbers, usually within the framework of the law and accounting standards but very much against their spirit and certainly not providing the “true and fair” view of a company that accounts are supposed to.
• It exploits the loopholes in the accounting standards.• Famous cases – Enron, Worldcom, Satyam, Tyco, etc.
TECHNIQUES OF CREATIVE ACCOUNTING
Some of the popular techniques used in creative accounting are:-
BIG BATH CHARGESCOOKIE JAR RESERVESMATERIALITYREVENUE RECOGNITIONREVERSAL OF ACTUAL EXPENSES
Purpose
• To magnify profits• For higher EPS• To impress investors • Bonus and salary hikes• For tax benefits• To hide problems
SATYAM
• Established in 1987 by R. Raju• India’s 4th fastest growing IT company• 53000 employees• First Indian company to be listed in NYSE,
DOW and Euronext• First Indian IT company to be certified ISO
9001:2000• Won many awards
Fall of Satyam
• Dec 16, 2008 : Satyam decided to buy stake in MAYTAS Infrastructure and MAYTAS properties, a company owned by promoter family for Rs. 8000 crores.
• Dec 17, 2008 : Satyam exits the deal due to investor protest. Its shares plunged.
• Dec 20, 2008 : British mobile solution provider Upaid files a law suit against Satyam in US court over Maytas deal.
• Dec 23, 2008 : World bank bans Satyam for 8 years for installing spy systems on its computers stealing assets from the world bank.
• Dec 28, 2009 : 4 independent directors resigned from Satyam Board.
• Dec 29 : Satyam hired DSP Merill Lynch to advise it on the ways to increase the shareholder value.
• Jan 3 : Promoters stake became less than 5%.• Jan 6 : DSP Merill Lynch found irregularities in
accounts, withdrew itself and approached SEBI to further look into the matter.
• Jan 7 : R. Raju resigned and confessed all the financial irregularities carried out by him over the last seven years.
Details of the scam…
• Manipulated figures
Take fake FD receipts
Tell the bank the receipt is
lost
Ask for duplicate
receipt
Use duplicate
for withdrawal
Deposite cash in
other bank
Show the original receipt
The money has
already vanished
HOW TO CREATE FAKE FD’S
A difference of Rs 7,136 Cr
Understated Liabilities Rs
1,230 Cr
Non existent interest
Rs 376Cr
Overstated Cash &
debtors Rs 5,040 Cr +
Rs 490 Cr
Extract from Raju’s letter
It is easy to start a fraud but nearly impossible to end it
without being caught.
This is what Raju meant to say by
“It was like riding a tiger, not knowing how to get off without
being eaten.”
More Details.. !!!!!! SMARTER THAN ME !!!!
• Mr. Raju also revealed that he created 13,000 fake salary accounts over the past few years.
• Created fake overseas clients and contracts which resulted in overstated revenues.
• Siphoning off funds from Satyam into Maytas Infra and Maytas Properties.
• Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over, thereby exposing the gap.
• The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam’s problem was solved, it was hoped that Maytas payments can be delayed.
Why the scam took place?
• Growing competition and threat of being over-taken
• Over confidence on his abilities
• To enhance the company’s image
• To help Maytas as well
• To increase shareholder’s value
• To meet the expectations of analysts
Who all were mainly responsible?B. Ramalinga Raju• Promoter & Chairman• Satyam Computers
B. Rama Raju• Promoter & CEO• Satyam Compuetrs
Srinivas Vadlamani• Chief Financial Officer• Satyam Computers
Talluri Srinivas• Auditor• PricewaterhouseCoopers
S. Gopalakrishnan• Auditor• PricewaterhouseCoopers
Role of PriceWaterhouse Coopers (PWC)
The auditing firm had no clue that the books were being fudged.
Allegations of negligence and collusion were put .
Auditor has the right to call for information and explanations by the company.
Their job involves verification of the financial statements.
They were negligent as they didn’t go to every bank to check that the cash deposits as shown in the books really existed.
They relied on the documents provided by the company to do the audit.
There was evidence of negligence because of which it was fined but no evidence was found on collusion or criminal conspiracy.
AFTERMATH…
• The Indian stock market fell drastically upon disclosure of the scandal
• It had a negative impact on the Indian IT industry
• Bad effects on the Foreign currency inflows
• Satyam stock lost 82% and SENSEX index closed down 7.3%
• Investigation, Criminal and Civil charges against the members involved
• Careers of 50,000 employees was at stack
• Government set up a new board to save the company
• World Bank barred Wipro, Megasoft and 3 other IT companies
Restructuring of Satyam• Indian Govt. provided liquidity support.• Govt. set up a new board to save the
company. Existing board was barred.• Govt. appointed noted banker Deepak
Parekh, former NASSCOM chief Kiran Karnik and former SEBI member C. Achuthan to Satyam’s board.
• R. Mynampati was elected as interim CEO.• New CEO was A.S Murthy.• Tech Mahindra acquired Satyam on 13th April,
2009• Homi. K and P. Dutta were appointed as
special advisors.
New Rules and Regulations• SEBI proposed creating a law that provides whistleblowers with protection
for reporting fraudulent activity. Finally, the SEBI revised takeover regulations to increase disclosure in takeovers.
• Two weeks after Satyam's collapse, the SEBI made it mandatory for controlling shareholders to disclose any share pledges.
• The SEBI also proposed requiring companies to disclose their balance sheet positions twice a year, which was earlier only once a year.
• Satyam strengthened India's commitment for adopting International Financial Reporting Standards ("IFRS") by 2011.
• The Ministry of corporate Affairs recently proposed a new law that would make it easier for Indian investors to form class action lawsuits against fraudulent actors in company.
Raju , Raju sat on the wall,Raju , Raju had a great fall,
Balance sheet died ,Shareholders cried,
Raju Raju made a fraud.
Raju Raju Yes Baba
Cheating us ?No Baba
Telling Lies?No Baba
Open the Balance sheetHA!! HA!! HA!!
THANK YOU