Satyam Case
CASE STUDY: MARCH 2012 SEMESTER I. Analyze the case and respond to the following questions: a) Discuss the earnings management techniques employed by the management of Satyam.
Earning management or creative accounting is referred to the manipulation or misrepresentation of the company’s financial earnings in order to achieve stable and positive financial position. This was achieve through directly or indirectly use of the accounting methods. Even though the manipulation may follow all the accounting standards and laws, they may go opposite of what the standards and laws were originally trying to establish. Therefore, earning management is often considered materially misleading and referred to a fraudulent activity.
Satyam Computer Services is a leading Indian outsourcing company which provides a wide range of information technology services. However, this company was involved in earning management where in 7 January 2009 it was publicly announced that the Chairman, Ramalinga Raju confessed that Satyam’s accounts had been falsified.
By referring to the Satyam case, one of the earning management technique used by the management of Satyam is off-balance sheet financing which an asset or debt was not disclose in the company’s balance sheet. This can hide the company 's true financial state. In Satyam case, Ramalinga Raju had understated the company’s liability of US$ 261.99 million on account of funds and he had also overstated the debtor’s position of US$ 104.37 million as against US$ 564.66 million. The amount was so significant that the financial statement was not showing the true position of the company.
The other technique employed by Satyam is through income recognition where Raju had adjusted the profit figures from one year to another year resulting into inflated profits. As in the Raju’s letter, he had confessed that he was manipulating the reported revenue for September quarter of Rs 2,700 crore as against the actual revenues of Rs 2,112
Earning management or creative accounting is referred to the manipulation or misrepresentation of the company’s financial earnings in order to achieve stable and positive financial position. This was achieve through directly or indirectly use of the accounting methods. Even though the manipulation may follow all the accounting standards and laws, they may go opposite of what the standards and laws were originally trying to establish. Therefore, earning management is often considered materially misleading and referred to a fraudulent activity.
Satyam Computer Services is a leading Indian outsourcing company which provides a wide range of information technology services. However, this company was involved in earning management where in 7 January 2009 it was publicly announced that the Chairman, Ramalinga Raju confessed that Satyam’s accounts had been falsified.
By referring to the Satyam case, one of the earning management technique used by the management of Satyam is off-balance sheet financing which an asset or debt was not disclose in the company’s balance sheet. This can hide the company 's true financial state. In Satyam case, Ramalinga Raju had understated the company’s liability of US$ 261.99 million on account of funds and he had also overstated the debtor’s position of US$ 104.37 million as against US$ 564.66 million. The amount was so significant that the financial statement was not showing the true position of the company.
The other technique employed by Satyam is through income recognition where Raju had adjusted the profit figures from one year to another year resulting into inflated profits. As in the Raju’s letter, he had confessed that he was manipulating the reported revenue for September quarter of Rs 2,700 crore as against the actual revenues of Rs 2,112