A Case Study in Corporate Governance & Ethical Auditing
Satyam Fiasco & Role of PwC as an Auditor
Ravinder Pal Singh Dhillon
Abstract & Approach
On Dec 16, 2008, Satyam declared to buy entire stakes in Maytas Properties for $1.3 Billion & 51% stakes in Maytas Infra for another $300 Million. By this action, the investors were furious. This was because of the move to invest in a promoter-related company and lack of prior consent of shareholders before deciding to invest. This led to investors’ activism due to which the deal had to be called off and Satyam stock plunged. On December 29, reports surfaced that the Satyam promoters had pledged their shares followed by resignation of 3 independent directors. On January 7, 2009, Ramalinga Raju resigned, after admiting to fraud. He said that the company's cash and bank balance sheet has been inflated and fudged to the tune of Rs 5,040 crores.
The reason for such a fiasco boils down to the incompetent Corporate Governance practiced in Satyam and improper auditing done by PricewaterhouseCoopers.
In this case study, we will first discuss briefly about the Satyam Fiasco and from a financial standpoint, we would discuss what led to the scam. We will gradually move towards understanding of Corporate Governance. This would cover what Corporate Governance means, what are the principles of Corporate Governance, what are the control mechanisms by which Corporate Governance can be regulated. We would then move to the loopholes on how Corporate Governance could be compromised and what precautionary measures should be taken to prevent a case like Satyam Fiasco in the future.
We would then discuss the role of PwC as an auditor of Satyam and what did PwC do wrong at its end which led to the Satyam Fiasco. We will also discuss the roles and responsibilities of auditing firms.
We will finally discuss the case...