1. Presentation by-
Swapnil Mali
Rohit Deshmukh
Vipin Bhosale

2. MITSOT System (2011-13) 2

3. OVERVIEW
• Introduction
• Literature Review
• Findings and Analysis
• Conclusions and Further Research
MITSOT System (2011-13) 3

4. Introduction
• Study shows
– World is not only just going through economic
crisis but also ethical crisis with the Corporate
frauds, Accounting scandals, Mismanagement,
Bribes and many more.
• Present Situation
• Purpose of Study
• Importance of Ethics
MITSOT System (2011-13) 4

5. Description of terms
Code of
Financial GAAP
Conduct Statements
Balance Income Cash Flow Stmt. Of
Sheet Stmt. Stmt. shareholders
ASSETS = LIABILITIES +
SHAREHOLDERS’ EQUITY
MITSOT System (2011-13) 5

6. Uses of Financial
Statements
• Financial Position
Company
• Decision Making
• Evaluate Risk
Investors
• Financial View
Financi • Amount of Loan
al
Instituti • Interest Rate
ons
MITSOT System (2011-13) 6

7. What is manipulation
Intentional omission
Alteration
of events, accounts…
Manipulation
presentation of Deliberate
inadequate misapplication of
disclosures accounting policies
MITSOT System (2011-13) 7

8. Terms Used
Cooking
the Books
Creative
Accounting
Window
Dressing
Manipulation of Financial
Statements – Doing Wrong
MITSOT System (2011-13) 8

9. Need for manipulation
Meet deadlines
Competition
Need Tax
Executive Bonus
Investors happy
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10. Manipulation and its
effects
• Less revenue
• Less TAX
Expenses • More revenue
• Better market position
• Happy investors
• More revenue
• Better market position
• Happy investors
Income
• Less revenue
• Less TAX
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11. Manipulation and its
effects
• Investors are happy as long as Assets are
higher than liabilities.
• So to make Assets > Liabilities :
1. Overstate assets than actual
2. Showing fictitious deposits in bank and also
interests on it
3. Hiding your Liabilities
E.g. Not showing all the loans , hiding unpaid bills
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12. Literature Review
What is Satyam ? SATYAM What happened ?
- Company SCAM - Accounting
Background Scandal
How did it happen ?
Scandal Analysis
MITSOT System (2011-13) 12

13. Literature Review
What is Satyam ? SATYAM What happened ?
- Company SCAM - Accounting
Background Scandal
How did it happen ?
Scandal Analysis
MITSOT System (2011-13) 13

14. Company background
What is Satyam ? SATYAM
- Company SCAM
Background
MITSOT System (2011-13) 14

15. Company Background
• Satyam was established in 1987.
• 4th fastest growing IT company in India.
• 9 % market share
• 53,000 employees
• Revenue $2.1 billion
• First Indian company to be listed in three
International Exchanges: NYSE, DOW and
EURONEXT
MITSOT System (2011-13) 15

16. IT
Healthcare Automotive
Software
Development,
ERP,
Outsourcing,
CRM,
Consulting
Banking
Bio-Tech and
Finance
Telecom
and Media
MITSOT System (2011-13) 16

17. Interesting Facts
 Development centers across world.
 Stance over 66 countries across six
continents.
 Satyam serves Fortune 500 Companies
which are 163 in number out of its 558
global companies.
 Exports account for almost 75.9 per cent of
its total sales revenues.
 North America contributes around 65 per
cent of the sales revenue followed by
Europe.
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18. Account Practices
 U.S. Generally Accepted Accounting
Principles (USGAAP)
 International Financial Reporting Standards
(IFRS)
 Complied with Indian accounting standards
MITSOT System (2011-13) 18

19. Literature Review
What is Satyam ? SATYAM What happened ?
- Company SCAM - Accounting
Background Scandal
How did it happen ?
Scandal Analysis
MITSOT System (2011-13) 19

20. Accounting scandal
SATYAM What happened ?
SCAM - Accounting
Scandal
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21. What happened ?
Satyam board
announces the Satyam
decision to buy announces a Sale of Pledged
stake in Maytas board meeting World Bank shares of
infrastructure a on Dec 29th confirms an 8 promoters result
company owned says it will year ban of in the promoter
by the promoter consider buy Satyam for stake in Satyam
family of Satyam back to keep data theft and coming down to
for INR 65 Billion investors trust bribery less than 5%
Dec 16 Dec 18 Dec 23 Jan 03
2008 2008 2008 2009
Dec 19 Dec 28 Jan 07
Dec 17 2008 2008 2008 2009
Satyam calls Unpaid files 4 Board Mr. Ramalinga
of the Maytas motion against members resign Raju resigns and
deal as a Satyam and in wake of confesses/cites
result of promoters for Maytas financial
investor INR 55 Billion controversy . irregularities in
revolt. claiming fraud Market the book of
speculation talks accounts to the
of hostile take tune of INR 71.36
over by peers Billion.
MITSOT System (2011-13) 21

22. Literature Review
What is Satyam ? SATYAM What happened ?
- Company SCAM - Accounting
Background Scandal
How did it happen ?
Scandal Analysis
MITSOT System (2011-13) 22

23. Scandal Analysis
SATYAM
SCAM
How did it happen ?
Scandal Analysis
MITSOT System (2011-13) 23

24. Satyam + PwC
Ramalinga Raju – CEO
created INR71.36 billion in fake
billing and cash
PwC auditors missed cash
accounts?
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25. Confessions of Raju
• “The scam of INR
71.36 billions in the
company’s balance
sheet was a result of
small manipulation of
accounts done many
years back.”
• “Riding a tiger, not
knowing how to get
off without being
eaten.”
MITSOT System (2011-13) 25

26. The wealth of Satyam investors has
been wiped-out by the scandal.
Source: Economic Times, 2009
MITSOT System (2011-13) 26

27. Question Raised ?
Investors Board Government
Invention
Accounting Ethics and Code
Standards of Conduct
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28. Investors
Investors Board Government
Invention
Accounting Ethics and Code
Standards of Conduct
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29. Investors
• Investors play an important role in detecting
financial position of a company.
• Investors must ensure that the share value which
is listed is genuine and as per its financial status.
• Institutional investors should take more
responsibility.
• Information about the company should be latest,
from trusted source, easily accessible and
correct.
• New regulation for information Act.
• Investors should take more care before investing.
• No risk involved if CEO is the founder of the
company.

30. Board
• Must monitor the ethical policies and the way
they are being maintained in the company.
• Accountable for the financial information
being projected.
• No to inactive board members.
• Authority to independent board of directors.
• Clear understanding of responsibility between
the board and next level employees.
• Qualified Board members.

31. Government Regulations, Policies and
intervention
• Government should always plays an active role in
the company affairs because the company runs
with the public money.
• The government must frequently check the
company’s performance in the market and take
necessary steps in curtailing any malpractices or
falsification.
• Government is not taking any corrective
measures in case of any violations
• If the auditor do their work sincerely then any
balance sheet and income statements would
show the fair value of the company’s financial
records.
• Government intervention must be increased to
have a foolproof mechanism in the company
policy matters.

32. Accounting Standards
• Auditors main responsibility is to check
fairness and trueness of financial
statements.
• Proper Audit Tools.
• Freedom for auditors
• Reputation of auditing firm/individual can’t
avoid scandals.
• Most of the companies involved in mega
scandals were audited by reputed auditing
firms.

33. Ethics of Individuals/Company, Defining
and implementing code of conduct
• Search or Nominations Committee
• Proper code of conduct updated on regular
basis should be implemented.
• Every company should have fraud detection
mechanism.
• Good Corporate Governance
• Good educational background doesn’t
always mean individual has good ethics.
• Whistle blowing policies

34. Result of scandal
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35. A Tale of Two Frauds
Then : December, 2001 Now : December, 2008

36. Failure of Auditors
Must take
information
directly from
Bank Company in order
to show increase
in revenue has
created fictitious
debtors and in
turn resulted in
fictitious bank
Confirmation balance.
from Bank
regarding
balances

37. Role of External Auditor
• The auditor did not confirm the bank balances
independently
• The various protocols were violated
• Two set of Confirmation
• No sample checking of invoices
• Liability against tax not reported
• Extra-ordinary payment of audit fee
• Not verifying the accrue interest on fake FDs
• Not verifying the TDS on accrued interest
• Not doing end to end audit
• Systems were found to be lax and same was not
taken up for rectification

38. Role of Internal Auditor
• The auditor did not do beginning to end
transactions verification
• Cash and bank balances were not verified
• Fake invoices were ignored
• The matter was not reported to Audit
Committee
• The audit plans were prepared on the basis
of the approval of the promoters
• Serious findings of the auditing team were
ignored by the audit team leader
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39. MITSOT System (2011-13) 39