satyam

Case 1a: Satyam Accounting Scandal

Mahindra Satyam is an IT company in India that recently perpetrated a large accounting scandal.

To complete this assignment, you should first conduct research using the Internet to better

understand Satyam and its fraud. Second, use the Internet and your understanding of class

material to answer the following questions.

Questions:

1. (a) In general, what is the role of information asymmetry in accounting scandals?

Information asymmetry generally occurs when the manager has more information

about a company than the owner does; but it can occur when any person or group of

people knows more than another. This imbalance of power is often part of the cause

of accounting scandals. For instance, if a manager of a corporation knows more or has

better information than the owner, it would be easy for the manager to falsify documents

to his liking. For an accounting scandal to occur there must be information asymmetry

somewhere. Unless, of course, the entire company is in on the fraud, in which there

would be no need for the asymmetry. If one person knows something that nobody else

does, then it is very easy for that person to use that knowledge to better himself or the

company, with little regard to what is legal or even ethical.

(b) What is the auditor’s role with respect to information asymmetry?

Auditors are hired to express their opinion on the fairness of a company’s financial

information and whether or not they have reported everything according to generally

accepted accounting principles. Inherent in that, then, is that the auditors should make

every effort to ascertain that all of the information presented in the financial statements

is accurate, and that all the information provided is accounted for somewhere. If an

auditor does this correctly, he/she should potentially catch any significant information

asymmetry errors and can take the