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