Topics: Accounting scandals, Fraud, Enron Pages: 50 (16935 words) Published: April 11, 2013
International Journal of Contemporary Business Studies Vol: 3, No: 10. October, 2012 ISSN 2156-7506 Available online at

Corporate Accounting Frauds: A Case Study of Satyam Computers Limited Madan Bhasin Professor in Accounting, Bang College of Business, KIMEP University, Almaty, Republic of Kazakhstan

ABSTRACT Corporate entities of all sizes, across the globe, are easily susceptible to frauds at any points of time. From Enron, WorldCom and Satyam, it appears that corporate accounting fraud is a major problem that is increasing, both in its frequency and severity. According to ACFE Global Fraud Study 2012, “The typical organization loses 5% of its revenues to fraud each year. Applied to the 2011 Gross World Product, this figure translates to a potential projected annual fraud loss of more than $3.5 trillion.” However, research evidence has shown that growing number of frauds have undermined the integrity of financial reports, contributed to substantial economic losses, and eroded investors’ confidence regarding the usefulness and reliability of financial statements. The increasing rate of white-collar crimes “demands stiff penalties, exemplary punishments, and effective enforcement of law with the right spirit.” Keywords: Corporate accounting frauds, Satyam computers, case study, India, corporate governance, accounting and auditing standards.

An attempt is made to examine and analyze in-depth the Satyam Computer’s “creative-accounting” scandal, which brought to limelight the importance of ‘ethics’ and corporate ‘governance’. The fraud committed by the founders of Satyam in 2009 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.” Scandals from Enron to the recent financial crisis have, time and again proved, that “there is an urgent need for good conduct based on strong corporate governance, ethics and accounting & auditing standards.” Unlike Enron, which sank due to ‘agency’ problem, Satyam was brought to its knee due to ‘tunneling’ effect. The Satyam scandal highlights the importance of securities laws and CG in emerging markets. Indeed, Satyam fraud “spurred the government of India to tighten the CG norms to prevent recurrence of similar frauds in future.” Thus, major financial reporting frauds need to be studied for ‘lessons-learned’ and ‘strategies-to-follow’ to reduce the incidents of such frauds in the future.

Fraud is a worldwide phenomenon that affects all continents and all sectors of the economy. Fraud encompasses a wide-range of illicit practices and illegal acts involving intentional deception or misrepresentation. According to the Association of Certified Fraud Examiners (ACFE, 2010), fraud is “a deception or misrepresentation that an individual or entity makes knowing that misrepresentation could result in some unauthorized benefit to the individual or to the entity or some other party.” In other words, mistakes are not fraud. Indeed, in

International Journal of Contemporary Business Studies Vol: 3, No: 10. October, 2012 Pp.16-42 ©Academy of Knowledge Process


Copyright © 2012. Academy of Knowledge Process

International Journal of Contemporary Business Studies Vol: 3, No: 10. October, 2012 ISSN 2156-7506 Available online at

fraud, groups of unscrupulous individuals manipulate, or influence the activities of a target business with the intention of making money, or obtaining goods through illegal or unfair means. Fraud cheats the target organization of its legitimate income and results in a loss of goods, money, and even goodwill and reputation. Fraud often employs illegal and immoral, or unfair means. It is essential that organizations build processes, procedures and controls that do not needlessly put employees in a position to commit fraud and that effectively detect fraudulent activity if it occurs. Fraud is...
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