Satyam Fraud Case
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This company’s fraud arose from the proposal to acquire the Maytas Infra flopped. According to Ramalinga Raju, “the acquisition was purposed to raise the financial deficit that could be injected in the misstated amount and actual amount with the intent of balancing it.” Additionally, Satyam’s CEO admission in his letter that he played a role in the misrepresentation of the figures also the catalyst in exposing the fraud.
The fundamental reason for the fraud was the desire for Raju to ensure that Satyam as the best place for the investors. Through the scam, Raju expected to seal the loopholes that had developed and offered Satyam as the potential investor preference. Additionally, Raju hoped to raise the price of shares on the stock market. The firm’s growth was exponential when it first went public (Satyam Scandal a Full Analysis n.d).
However, after the fraud began taking shape, its relevance diminished hence Raju had to engage in fraudulent activities with the objective of making the best of the situation. Additionally, the fraud took effect due to the failure at whole levels of auditing. The primary auditors ere negligent to the financial irregularities that were depicted earlier. The internal audit sections headed by the CFO, external auditor by the PWC, and the Boards’ audit committee chaired by independent directors failed to undertake their duties appropriately. Furthermore, weak corporate governance also played an essential role in facilitating the fraud (Satyam Scandal a Full Analysis n.d).
From a personal point of view, I believe that the fraud could have been prevented. First, by having a board that recognizes their duties. The board could have had competent board members that have the mandate to examine the ethical practices applied to the company. Secondly, putting in place effective and relevant government regulations, policies, and interventions. Increasing the government’s intervention in the duties undertaken by the auditors could have had immense relevance in unmasking the fraud on time (Palich and Ireland n.d).
Furthermore, putting in place accounting standards that work on ensuring the balance and accountability on the various financial statements, engaging reputable audit firms, and according to the auditors the freedom from interference from the executives. Finally, enforcing resounding ethical standards on the employees. Satyam could have encouraged their employees to immediately report any financial irregularities.
Satyam board and committee members’ composition adhered to the rules and regulations. The board had four internal and five independent members. The company adopted the governance standards surpassing the prescription in the law. The shareholders performed the tasks of selecting the board of directors who were tasked with the duty to formulate goals and warrant attainment of the stakeholder interests (Palich and Ireland n.d). The management of the organization was billed with the duty of establishing and implementing policies and procedures that were in tandem with the mission of the organization. The primary driving forces of corporate governance at the organization involved the pursuit of excellence, investor delight, customer delight, and associate delight.
The accounting practices that the organization embraced included the U.S. GAAP, IFRS, and operated within the framework of Indian Accounting standards.
Attributes of the board of directors that may prevent financial statement fraud include possession of ethical and moral qualities. Additionally, the board members need to be accountable and accept responsibility. The board members need to be qualified and have an in-depth conception of their duties and responsibilities. The board members need to have excellent communication skills to permit them to report succinctly (Palich and Ireland n.d).
A significant lesson drawn from the audit committee is that continuing with work that depends majorly on trust and goodwill without subjecting the entire process under scrutiny and verification has the potential of creating loopholes embraced for fraudulent practices (Swanquist and Mulis 567).
i. Central government’s power to direct special audit in certain scenarios.
ii. Blacklist Chartered Accountants by ICAI for engaging in fraudulent activities
iii. Employ investigative audit techniques and forensic auditors.
iv. Minimal government control over internal corporate processes
v. Put in place new auditing regulations that are cost-effective for the organizations.
vi. Empowering the whistleblowers (Kohli and Gaur n.d)
“Satyam Scandal a Full Analysis.” Satyam Scandal a Full analysis. Web 12 Nov. 2017. Hitt, M.A., Ireland, R.D. and Hoskisson, R.E. (2016). Strategic Management: Concepts and Cases: Competitiveness and Globalization (12th Edition). Kohli, Nisha, and Ajai gaur. “Governance Failure at Satyam.” W!!095 (2011). Richard Ivey School of Business Foundation. Web. 2015
Palich, Leslie E., and R. Duane Ireland. Strategic management: Competitiveness and Globalization, 4th Ed. [by] Michael A. Hitt. R. Duane Ireland, Robert E. Hoskisson. Cincinnati: South western Thomson Learning, 2001. Print Swanquist, Quinn, and Curtis Mullis. Assurance Services. McGraw-Hill Education, 201. 567. Print