Research Report – Satyam Scandal

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Business Background
Research Report – Satyam Scandal
Snehal Tiwari, Student Id: 3316645Assignment 2Course Code: BUSM 2112

Executive Summary
Satyam was one of the big five IT consulting and services firm in India. At the time of this scandal it reported around USD 2 billion in revenues. ‘Satyam’ meaning ‘truth’ in Sanskrit, is today more related to this scandal. The scandal in brief is about how its promoter and chairman resorted to fudging the accounts to overstate earnings (by about 1.5 billion dollars USD, over a long period of time) in order to purportedly retain investor confidence and ostensibly retain control of the company in which he did not have a controlling stake.

This scandal was affected (supposedly by a single person) in spite of: * Company having listed in India and USA and hence having to adhere to strict market regulations. i.e. Company Law and SEBI (market regulator) in India & SEC and Sarbanes-Oxley act in USA * One of the biggest names in financial auditing (PWC) in charge of auditing company financial reporting. * Company having a majority representation of independent directors on its Board. * Marquee names in industry and academics were present as independent directors on the Board. * Promoter (the conspirator) though in place as a chairman, was not a majority shareholder.

This scam led to financial losses for a large number of small shareholders at the same time eroding the confidence of investors in corporate environment in India. It gave a substantial beating to the clean and responsible image of IT companies in India and abroad. The scam is also a display how two major components, in ensuring authentic financial reporting (auditors) of the company and fiduciary prudence (independent directors) failed to honestly carry out their responsibilities.

This report has described the resultant effects of this scam on its promoters, auditors, company as a whole, stock market and IT companies in India. It has also compared this scam with the Enron scam which took place in USA at the start of the century. The report then has given a short brief about corporate social activity of the company.

This report concludes that given due diligence and attention to their responsibilities by directors and auditors, this scam could have been avoided. The requirement in Indian context is to have credible checks to balance out the undue promoter/management influence on company board selection and functioning. Accounting practices in India need to be strengthened and laws are needed to make auditors liable for their lapses.

Investigations and court cases related to this scandal are still in progress in India.

Table of Contents
Executive Summary1
Introduction2
Background3
The Scandal3
Corporate Governance4
Indicators of impending Disaster4
Ethics & failure of Oversight5
Internal and External Auditors6
Independent Directors6
Aftermath and Effects7
Comparison with Enron7
Corporate Social Responsibilities8
Conclusion8

The primary purpose of corporate leadership is to create wealth legally and ethically. This translates to high level of satisfaction to five constituencies: - Customers, employees, investors, vendors and society at large. The raison d'etre (reason for existence) of every corporate body is ensuring predictability, sustainability and profitability of revenues year after year.

- N. R. Narayana Murthy,
Chairman of the Board and Chief Mentor,
Infosys (www.infosys.com)
The primary purpose of corporate leadership is to create wealth legally and ethically. This translates to high level of satisfaction to five constituencies: - Customers, employees, investors, vendors and society at large. The raison d'etre (reason for existence) of every corporate body is ensuring predictability, sustainability and profitability of revenues year after year.

- N. R. Narayana Murthy,
Chairman of the Board and Chief Mentor,...
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