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Submitted by

Srishti Jain

Enrollment no. 20160041

In partial fulfillment for the award of the degree




Finance and Human Resources


MAY, 2018
This is to certify that Report entitled “A Study On Enron, Lehman and Satyam Scandal” which
is submitted by me in partial fulfillment of the requirement for the award of degree MBA
(Finance and Human Resources) to Mangalayatan University, Aligarh comprises only my
original work and due acknowledgement has been made in the text to all other material used.

Date: Name & Signature of the student

This is to certify that Report entitled “A Study on Enron, Lehman and Satyam Scandal” which
is submitted by Srishti Jain in partial fulfillment of the requirement for the award of degree
MBA(Finance and Human Resources), Mangalayatan University, Aligarh is a record of the
candidate’s own work carried out by him/her under my/our supervision. The matter embodied in
this thesis is original and has not been submitted for the award of any other degree.

Date: Name and Signature of Supervisor

I would like to express my deep sense of honor, regards and respect to all those who were
associated whether directly or indirectly with this project and helped me in successful completion of
this summer training report.

I sincerely thank my college project guide Dr. Anurag Shakya for his strong support and inspiration
during my project period.

Last but not the least I am indebted to my family who provided me their time and support needed
to prepare this report.

Srishti Jain

MBA 2nd year



S. Particulars Page no.


1. Chapter 1- Introduction of the Study 7

1.1 Introduction of the Topic 8

1.2 Need and Significance 10

1.3 Objective of the Study 11

1.4 Research Methodology 12

 Research Design

 Sampling Technique

 Sample Size

 Data Collection

1.5 Literature Review 13

2. Chapter 2- Conceptual Framework of the Study 16

2.1 Accounting Scandals and Frauds 17

 Causes

2.2 ENRON Scandal(2001) 20

 Introduction

 ENRON in India

 Aftermath

2.3 Lehman Bros. Bankruptcy (2008) 26

 Introduction

 Aftermath

2.4 Satyam Scandal(2009) 29

 Introduction

 Corporate Governance Issues at Satyam

 Aftermath

 Investigation

 Lessons Learned from Satyam

3. Chapter 3-Data Analysis and Interpretation 36

 Accounting Manipulation at ENRON

 Accounting Manipulation at Lehman Bros.

 Accounting Manipulation at Satyam

4. Chapter 4-Conclusion 53

5. Chapter 5-Suggestions 57

6. Bibliography 59


Accounting scandals are political and/or business scandals which arise with the disclosure of financial
misdeeds by trusted executives of corporations or governments. Forensic accounting or financial
forensics is the specialist practice area of accountancy that describes engagements that result from actual
or anticipated disputes or litigation.

According to the Association of Certified Fraud Examiners (ACFE), fraud is “a deception or

misrepresentation that an individual l or entity makes knowing that misrepresentation could result in
some individual or to the entity or some other party”. In other words, mistakes are not fraud.

Enron was a USA-based firm formed in1985 by Kenneth Lay as a merger of Houston Natural Gas
Company and Inc. It was the first natural gas pipeline network in Houston, Texas. Enron became the 7 th

largest company in America.

Lehman Brothers Holdings Inc was a global financial services firm, which until declaring bankruptcy in
2008, participated primarily in investment and private banking. Lehman's collapse roiled global
financial markets for weeks, given the size of the company and its status as a major player in the U.S.
and internationally.

Satyam Computer Services Limited was a “rising-star” in the Indian “outsourced” IT-services industry.
The company was formed in 1987 in Hyderabad (India) by Mr. Ramalinga Raju. The firm began with
20 employees and grew rapidly as a “global” business.

The Satyam fraud went on for a number of years and involved both the manipulation of balance sheet
and income statement.

Enron, Lehman and Satyam were some of the biggest companies of their countries but did not
behave ethically in contrast to their status, in order to move fast they only maintained their stock
price and keep up with the high performance rankings. They also indulged in dubious accounting
practices to hide the true picture such as kept off huge debts from the balance sheet and hide the
failures of long term deals. These scandals also questions the bureaucrats involved who turned a
blind eye to the practices by these companies. These scandals once again emphasized the need of
teaching ethics and responsibilities to our future professionals and encourage them to do the right

With the rapid integration of economies any scandal in one country has a far reaching impact on
others as well because today all countries are dependent on one another in some way or the other.
Thus, to, keep the economy in good condition it is necessary to prevent the occurrence of these
scandals. Hence it is necessary to study the unethical practices followed by the culprits in various
accounting scandals to prevent their use in the future. Also this will help the future managers to
come up with stricter rules and regulations for the corporations.

This dissertataion aims to study three of the most notorious and landmark accounting scandals
around the globe from a completely technical point of view. In this dissertation I study three
accounting scandals namely Enron Scandal (2001), Lehman Bros. Bankruptcy (2008) and
Satyam Scandals.

 Research Design- Descriptive research design

 Sampling Technique- Simple Random Sampling

 Sample Size- 3 Scandals

 Data Collection- Secondary Sources

 BY
Enron Corporation was one of the largest energy trading, natural gas and Utilities
Company in the world that was based in Huston, Texas. The downfall of Enron is one
of the most infamous and shocking events in the financial world, and its reverberations
were felt around the globe. Prior to its collapse in 2001, Enron was one of the leading
companies in the U.S and considered among top 10 admired corporations and most
desired places to work at. Its revenues made up US $139 to $184 billion, assets equaled
$62 to $82 billion, and the number of employees reached more than 30,000 people in
20 countries around the world.

 Causes and Effects of the Lehman Brothers Bankruptcy, Luigi Zingales* October


I argue that the demise of Lehman Brothers is the result of its very aggressive
leverage policy in the context of a major financial crisis. The roots of this crisis have
to be found in bad regulation, lack of transparency, and market complacency brought
about by several years of positive returns. Lehman’s bankruptcy lead to a
reassessment of the risk, in particular in the market for credit default swaps.

 The Value of Investment Banking Relationships: Evidence from the Collapse of

Lehman Brothers



We examine the long‐standing question of whether firms derive value from investment
bank relationships by studying how the Lehman collapse affected industrial firms that
received underwriting, advisory, analyst, and market‐making services from Lehman.
Equity underwriting clients experienced an abnormal return of around −5%, on average,
in the 7 days surrounding Lehman's bankruptcy, amounting to $23 billion in aggregate
risk‐adjusted losses. Losses were especially severe for companies that had stronger and
broader security underwriting relationships with Lehman or were smaller, younger, and
more financially constrained.


INDIA’S ENRON Dr. Madan Bhasin

Scandals are often the “tip of the iceberg”. They represent the ‘visible’ catastrophic
failures. An attempt is made in this paper to examine in depth and analyze India’s
Enron, Satyam Computer’s “creative accounting” scandal. Their scandal/fraud has put a
big question mark on the entire corporate governance system in India. In public
companies, this type of ‘creative’ accounting leading to fraud and investigations are,
therefore, launched by the various governmental oversight agencies. The accounting

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 have 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. The
increasing rate of white-collar crimes “demands stiff penalties, exemplary punishments,
and effective enforcement of law with the right spirit.”

 The Enron Scandal and the Neglect of Management Integrity Capacity

Author: Joseph A. Petrick


The nature, value, and neglect of integrity capacity by managers and the adverse
impacts that Enron executive practices have had on a range of stakeholders are
delineated. An explanation is given on how moral competence in management
practice is addressed by each dimension of the management integrity capacity
construct (process, judgment, development, and system) and how Enron executive
practices eroded each dimension. Specifically addressed is how behavioral and
moral complexity can be utilized to balance the competing values of management
and ethics theories to reduce the likelihood of future Enron‐like managerial
malpractice. Finally, three positive action steps are recommended to improve
managerial integrity capacity and remedies are proposed for victimized Enron


Accounting scandals are political and/or business scandals which arise with the disclosure of
financial misdeeds by trusted executives of corporations or governments. Such misdeeds
typically involve complex methods for misusing or misdirecting funds, overstating revenues,
understating expenses, overstating the value of corporate assets or underreporting the
existence of liabilities, sometimes with the cooperation of officials in other corporations or

This type of "creative accounting" can amount to fraud, and investigations are typically
launched by government oversight agencies, such as the Securities and Exchange Commission
(SEC) in the United States and Securities and Exchange Board of India (SEBI) in India.

According to the Association of Certified Fraud Examiners (ACFE), fraud is “a deception

or misrepresentation that an individual l or entity makes knowing that
misrepresentation could result in some individual or to the entity or some other party”. In
other words, mistakes are not fraud. Indeed, in 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. The
fraud involving persons from the leadership level is known under the name “managerial
fraud” and the one involving only entity’s employees is named “fraud by employees’

Every day, there are revelations of organizations behaving in discreditable ways. Generally,
there are three groups of business people who commit financial statement frauds. They
range from senior management (CEO and CFO); mid- and lower-level management and
organizational criminals. CEOs and CFOs commit accounting frauds to conceal true
business performance, to preserve personal status and control and to maintain personal
income and wealth. Mid- and lower-level employees falsify financial statements related to
their area of responsibility (subsidiary, division or other unit) to conceal poor performance
and/or to earn performance-based bonuses. Organizational criminals falsify financial
statements to obtain loans, or to inflate a stock they plan to sell in a “pump-and-dump”

Fraudulent financial reporting can have significant consequences for the organization and its
stakeholders, as well as for public confidence in the capital markets. Moreover, corporate
fraud impacts organizations in several areas: financial, operational and psychological.

While the monetary loss owing to fraud is significant, the full impact of fraud on an

organization can be staggering. In fact, the losses to reputation, goodwill, and Customer

relations can be devastating.

It is fairly easy for a top executive to reduce the price of his/her company's stock – due to
information asymmetry. The executive can accelerate accounting of expected expenses, delay
accounting of expected revenue, engage in off balance sheet transactions to make the company's
profitability appear temporarily poorer, or simply promote and report severely pessimistic
estimates of future earnings.

A reduced share price makes a company an easier takeover target. When the company gets bought
out (or taken private) – at a dramatically lower price – the takeover artist gains a windfall from
the former top executive's actions to surreptitiously reduce share price. This can represent tens
of billions of dollars (questionably) transferred from previous shareholders to the takeover

 Top executives often reap tremendous monetary benefits when a government-owned or non-
profit entity is sold to private hands.

Often managers and employees are pressured or willingly alter financial statements for the personal
benefit of the individuals over the company. Managerial opportunism plays a large role in these
scandals. For example, managers who would be compensated more for short-term results would
report inaccurate information, since short-term benefits outweigh the long-term ones such as
pension obligations.

These accounting scandals have paved the way for a completely new branch of accounting
known as Forensic Accounting. Forensic accounting or financial forensics is the specialty
practice area of accountancy that describes engagements that result from actual or anticipated
disputes or litigation. "Forensic" means "suitable for use in a court of law", and it is to that
standard and potential outcome that forensic accountants generally have to work.



Enron was a USA-based firm formed in1985 by Kenneth Lay as a merger of Houston Natural
Gas Company and InterNorth Inc.It was the first natural gas pipeline network in Houston,
Texas. Enron became the 7th largest company in America.

As Enron became the largest seller of natural gas in North America by 1992, its gas contracts
trading earned earnings before interest and taxes of $122 million, the second largest contributor
to the company's net income.

By December 31, 2000, Enron’s stock was priced at $83.13 and its market capitalization
exceeded $60 billion, 70 times earnings and six times book value, an indication of the stock
market’s high expectations about its future prospects.
Enron shareholders filed a $40 billion lawsuit after the company's stock price, which achieved a
high of US$90.75 per share in mid-2000, plummeted to less than $1 by the end of November

The U.S. Securities and Exchange Commission (SEC) began an investigation, and rival
Houston competitor Dynegy offered to purchase the company at a very low price. The deal
failed, and on December 2, 2001, Enron filed for bankruptcy under Chapter11 of the United
States Bankruptcy Code.

Enron's $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until
WorldCom's bankruptcy the next year.

Enron's collapse may have begun with the kind of misadventures it engaged in half a world away
among the quiet coastal villages of Dabhol, India.

In 1992, the Enron Corp. announced it would build a $3 billion natural-gas power plant in Dabhol
in the western state of Maharashtra. The project was to be the poster child of economic
liberalization in the country -- the single largest direct foreign investment in India's history.

Instead, Enron in India has been an economic disaster and a human rights nightmare.

From the get-go, the Dabhol project was mired in controversy. Enron worked hand in hand with
corrupt Indian politicians and bureaucrats in rushing the project through.

Charges filed by an Indian public interest group allege Enron and the Indian company Reliance
bribed the Indian petroleum minister in 1992-93 to secure the contract to produce and sell oil and
gas from the nearby Panna and Mukta fields to supply the plant.

A Human Rights Watch report recounted incidents of farmers' land stolen, water sources
damaged, officials bribed and opponents of the project arrested on trumped-up charges.

In 1997, the state police attacked a fishing village where many residents opposed the plant. The
pregnant wife of one protest leader was dragged naked from her home and beaten with batons.

The state forces accused of abuses provided security to the Dabhol Power Corporation (DPC), a
joint venture of Enron, the Bechtel Corp. and General Electric, overseen by Enron.

The U.S. State Department issued the DPC a human rights clean bill of health. Charged with the
assessment was U.S. Ambassador Frank Wisner, who had also helped Enron get a contract to
manage a power plant in Subic Bay in the Philippines in 1993. Shortly after leaving his post in
India in 1997, Wisner took up an appointment to the board of directors of Enron Oil and Gas, a
subsidiary of Enron.

Thanks in part to Wisner's positive rights review, Washington extended some $300 million in loan
guarantees to Enron for its investment in Dabhol -- even though the World Bank had refused to
finance the project, calling it unviable.

An Indian investigative committee report exposed an "utter failure of governance" -- bribery, lack
of competitive bidding, secrecy, etc. -- by both the Indian federal government and two successive
state governments as they rushed the Enron project through.

By June 2001, the Maharashtra state government had already broken off its agreement with DPC
because its power cost too much. That was the plant's one and only customer.

By December, news of Enron's collapse was in newspapers across the world. But the company
still filed a $200 million claim with the U.S. government's Overseas Private Investment
Corporation, a U.S. taxpayer-funded insurance fund for American companies abroad, in an
attempt to recoup losses from the DPC.

Indian newspapers reported that Vice President Dick Cheney, Treasury Secretary Paul O'Neil and
Commerce Secretary Don Evans tried to twist the Indian government's arm into coughing up the
money. Otherwise, U.S. officials warned, other investment projects would be jeopardized.
International media reported last month that U.S. government documents showed Cheney tried to
help collect the debt.

How did Enron manage to push the project through? By using a time-tested strategy. Centuries
ago, the East India Company went to India to trade and stayed on to rule. Before long, Indian
money and goods were feeding coffers in London, and the products were sold back to the colony.
The DPC was in India, but the money went to Enron's offshore tax shelters.

And just like the East India Company, Enron appeared to apply a strategy of divide and conquer.
It offered groups of villagers money, hospitals and lucrative labor contracts, with the result that
families sometimes became divided against each other.

The business editor of India's largest television network says Enron offered to pay him $1
million a year to be its corporate communications chief in an effort to silence his criticism of its
plan to build a $3 billion power plant there.

Raghu Dhar of Zee TV speaks to CBS News Correspondent Bob Simon for a report that
reveals how Enron – with the help of two U.S. administrations – pushed for and built the plant,
even though it would quadruple Indian electricity bills while guaranteeing big profits at no risk
to Enron. The report will air Sunday on 60 Minutes at 7 p.m. ET/PT

"Yes, of course [the job offer was to buy silence]," says Dhar, whose criticisms included
pointing out that the deal called for Enron to be paid for all the power produced, whether or not
it was needed or used. "These are the kinds of things which raised our eyebrows…Absolute
arrogance. It was something I had not seen American companies do abroad, really," he says.

The plant would run on liquefied natural gas shipped by tanker from the Middle East, a
prospect many considered odd because India has lots of coal, a much cheaper and common fuel

it has traditionally used to generate electricity. It turns out Enron was going to buy the natural
gas from one of its own subsidiaries. Moreover, the central Indian government would assume
essentially all risks in the venture, assuring Enron a 25 percent return on its investment.

Enron has always maintained that the power plant would be beneficial to India.

The World Bank refused to invest in the project and issued a report, warning that the plant and
the electricity were much too expensive, but the U.S. government backed Enron's plan.

According to Pradyumna Kaul, a management consultant evaluating the Enron project for the
Indian government, "the Indian government in Delhi were told that they would have no
alternative but to sign [Enron's deal]. That was the only condition for the U.S. government to
continue to support India on the foreign exchange financial front," says Kaul.

When the project was halted by a local politician who was elected partly by promising to stop
its construction, the American ambassador to India under President Clinton, Frank Wisner,
came to Enron's aid. Wisner tells Simon the project was in the best interests of India's state and
central governments.

Kaul says Wisner put pressure on government officials. "He would come up and explain that if
India does not go along with Enron's proposal, then foreign investment and capital flows into
the country would dry up. He said it not once, [but] a number of times." When asked if Wisner
was just doing his job to get business for American companies, Kaul said there were other
American companies doing business in India, "But the only company and the only project
which Wisner supported was Enron," he says.

Wisner joined Enron as a director of one of its subsidiaries after leaving government service, a
move he said was common. "There have been hundreds of government officials…who have
joined private companies after leaving their offices," he tells Simon.

The project went through, but last year, the plant shut down as India's state electric company
could no longer pay Enron's bills. Enron Chairman Kenneth Lay demanded a billion-dollar
bailout from the central government in India, even getting the Bush administration to set up an
Enron task force to push the issue.

Those efforts bogged down after the Sept.11 terrorist attacks, the war in Afghanistan and the
financial collapse of Enron, but there is still pressure on India. The current ambassador to India,
Robert Blackwill, publicly mentioned the debt two months ago.

Says Dhar, "To us, at the end of the day, it was one of the worst sides of American corporate
culture we saw. We felt sad because we expected amazing standards."


The Enron scandal turned in the indictment and criminal conviction of one of the Big Five
auditor Arthur Andersen on June 15, 2002. Although the conviction was overturned on May 31,
2005, by the Supreme Court of the United States, the firm ceased performing audits and is
currently unwinding its business operations. The Enron scandal was defined as being one of the
biggest audit failures.

Many executives at Enron were indicted for a variety of charges and were later sentenced to
prison. Enron's auditor, Arthur Andersen, was found guilty in a United States District Court, but
by the time the ruling was overturned at the U.S. Supreme Court, the company had lost the
majority of its customers and had closed.

Employees and shareholders received limited returns in lawsuits, despite losing billions in
pensions and stock prices. As a consequence of the scandal, new regulations and legislation
were enacted to expand the accuracy of financial reporting for public companies.
One piece of legislation, the Sarbanes-Oxley Act, increased penalties for destroying, altering, or
fabricating records in federal investigations or for attempting to defraud shareholders. The act
also increased the accountability of auditing firms to remain unbiased and independent of their
clients. In India, Clause 49 regarding listing companies is on the lines of Sarbanes-Oxley Act.


Lehman Brothers began trading in buying and selling cotton in the state of Alabama in
the1850's enjoying prominence in a small market. The brothers had ambitions to grow outside
the local market and soon opened an office in New York.
Later the firm moved away from strictly dealing in commodities to merchant banking.

The Lehman Brothers Holdings Inc was a global financial services firm, which until declaring
bankruptcy in 2008, participated primarily in investment and private banking.

On September 15, 2008, the firm filed for Chapter 11 bankruptcy protection following the
drastic loss in stock from its alleged misleading accounting practices.

With $639 billion in assets and $619 billion in debt, Lehman's bankruptcy filing was the largest
in history, as its assets far surpassed those of previous bankrupt giants such as WorldCom and

Lehman was the fourth-largest U.S. investment bank at the time of its collapse, with 25,000
employees worldwide.

Lehman's demise also made it the largest victim, of the U.S. subprime mortgage-induced
financial crisis that swept through global financial markets in 2008.

Lehman's collapse was a seminal event that greatly intensified the 2008 crisis and contributed to
the erosion of close to $10 trillion in market capitalization from global equity markets in
October 2008, the biggest monthly decline on record at the time.


After the Examiner’s report was published, the Securities and Exchange Commission(SEC) sent
letters to chief financial officers of nearly two dozen large financial and insurance companies
asking about their firms' use of repurchase agreements, including the number and amount of
such agreements that qualify for sales accounting, and detailed analysis of why such
transactions can be treated as sales.

 Since the bankruptcy and liquidation of Lehman Brothers, the other major investment
banks have converted to Bank Holding Companies supervised by the Federal Reserve.

 Market participants, in particular large and complex financial institutions, continue to

address the challenges of accurately quantifying, aggregating, monitoring, and reporting market,

credit, and liquidity risks.

 Clients have placed increased scrutiny on selecting and monitoring derivative and other
counterparties, including their prime brokerage relationships.

 Investors and counterparties are requiring added assurance that their assets and trade
obligations are adequately safeguarded, moving business and assets away from arrangements
and institutions perceived as less secure, or seeking to modify existing contractual


Satyam Computer Services Limited was a “rising-star” in the Indian “outsourced” IT-services
industry. The company was formed in 1987 in Hyderabad (India) by Mr. Ramalinga Raju. The firm
began with 20 employees and grew rapidly as a “global” business.

It offered IT and business process outsourcing services spanning various sectors. Satyam was as an
example of “India’s growing success”. Satyam won numerous awards for innovation, governance,
and corporate accountability.

In 2007, Ernst & Young awarded Mr. Raju with the ‘Entrepreneur of the Year’ award. On April 14,

2008, Satyam won awards from MZ Consult’s for being a ‘leader in India in CG and accountability’.

In September 2008, the World Council for Corporate Governance awarded Satyam with the ‘Global
Peacock Award’ for global excellence in corporate accountability”. Unfortunately, less than five
months after winning the Global Peacock Award, Satyam became the centerpiece of a “massive”
accounting fraud.

By 2003, Satyam’s IT services business included 13,120 technical associates servicing over 300
customers worldwide. At that time, the world-wide IT services market was estimated at nearly $400
billion, with an estimated annual compound growth rate of 6.4%.

The markets major drivers at that point in time were the increased importance of IT services to
businesses worldwide; the impact of the Internet on e-business; the emergence of a high‐quality IT
services industry in India and their methodologies; and, the growing need of IT services providers
who could provide a range of services”.
To effectively compete, both against domestic and global competitors, the company embarked on a
variety of multipronged business growth strategies.

From 2003-2008, in nearly all financial metrics of interest to investors, the company grew
measurably. Satyam generated USD $467 million in total sales.

By March 2008, the company had grown to USD $2.1 billion. The company demonstrated “an
annual compound growth rate of 35% over that period”.

Operating profits averaged 21%. Earnings per share similarly grew, from $0.12 to $0.62, at a
compound annual growth rate of 40%.

Over the same period (2003‐2009), the company was trading at an average trailing EBITDA
multiple of 15.36.

Finally, beginning in January 2003, at a share price of 138.08 INR, Satyam’s stock would peak at
526.25 INR—a 300% improvement in share price after nearly five years. Satyam clearly generated
significant corporate growth and shareholder value. The company was a leading star—and a
recognizable name—in a global IT marketplace.

Ironically, Satyam means “truth” in the ancient Indian language “Sanskrit”. Satyam won the
“Golden Peacock Award” for the best governed company in 2007 and in 2009. From being India’s IT
“crown jewel” and the country’s “fourth largest” company with high-profile customers, the
outsourcing firm Satyam Computers has become embroiled in the nation’s biggest corporate scam in
the living memory.

Mr. Ramalinga Raju (Chairman and Founder of Satyam; henceforth called “Raju”), who has been
arrested and has confessed to a $1.47 billion (or Rs. 7800 crores) fraud, admitted that he had made
up profits for years.

According to reports, Raju and his brother, B. Rama Raju, who was the Managing Director, “hid the
deception from the company’s board, senior managers, and auditors”. The case of Satyam’s
accounting fraud has been dubbed as “India’s Enron”. In order to evaluate and understand the
severity of Satyam’s fraud, it is important to understand factors that contributed to the “unethical”
decisions made by the company’s executives.

First, it is necessary to detail the rise of Satyam as a competitor within the global IT services market-

Second, it is helpful to evaluate the driving-forces behind Satyam’s decisions: Ramalinga Raju.
Finally, attempt to learn some “lessons” from Satyam fraud for the future.


On a quarterly basis, Satyam earnings grew. Mr. Raju admitted that the fraud which he committed
amounted to nearly $276 million. In the process, Satyam grossly violated all rules of corporate
governance. The Satyam scam had been the example for following “poor” CG practices. It had
failed to show good relation with the shareholders and employees. CG issue at Satyam arose
because of non-fulfillment of obligation of the company towards the various stakeholders. Of
specific interest are the following: distinguishing the roles of board and management; separation of
the roles of the CEO and chairman; appointment to the board; directors and executive
compensation; protection of shareholders rights and their executives.

1. Merrill Lynch terminated its engagement with Satyam.

2. PWC comes under intense scrutiny and its license to operate was revoked.

3. Coveted awards won by Satyam and its executives management were stripped from
the company.

4. Impact on Satyam shares.

Stock Market Beginning Before scam After scam

1998 2008 2009

India Rs.11.00 Rs.544 Rs.11.50

USB _ $29.10 $1.80

4. Investors lost $2.82 billion in Satyam.

5. Rolling down Indian stock markets and throwing the industry in turmoil.

6. Criminal charges brought against Mr. Raju , including : criminal conspiracy, breach
of trust and forgery.

7. The role played by PWC, investors became wary of those companies who are
clients of PWC.

The investigation that followed the revelation of the fraud has led to charges against several
different groups of people involved with Satyam. Indian authorities arrested Mr. Raju, Mr.
Raju’s brother, B. Ramu Raju, its former managing director, Srinivas Vdlamani, the
company’s head of internal audit, and its CFO on criminal charges of fraud. Indian

authorities also arrested and charged several of the company’s auditors (PwC) with fraud.
The Institute of Chartered Accountants of India ruled that “the CFO and the auditor were
guilty of professional misconduct”. The CBI is also in the course of investigating the CEO’s
overseas assets. There were also several civil charges filed in the US against Satyam by the
holders of its ADRs. The investigation also implicated several Indian politicians. The Indian
court judged on April, 2015 that all the suspect of Satyam scandal became prisoners of
Indian jail.

In the aftermath of Satyam, India’s markets recovered and Satyam now lives on. India’s
stock market is currently trading near record highs, as it appears that a global economic
recovery is taking place. Civil litigation and criminal charges continue against Satyam. Tech
Mahindra purchased 51% of Satyam on April 16, 2009, successfully saving the firm from a
complete collapse. With the right changes, India can minimize the rate and size of
accounting fraud in the Indian capital markets.


The 2009 Satyam scandal in India highlighted the nefarious potential of an improperly
governed corporate leader. As the fallout continues, and the effects were felt throughout the
global economy, the prevailing hope is that some good can come from the scandal in terms
of lessons learned. Here are some lessons learned from the Satyam Scandal:

 Investigate All Inaccuracies

The fraud scheme at Satyam started very small, eventually growing into $276 million
white-elephant in the room. This sends a message to a lot of companies: if your
accounts are not balancing, or if something seems inaccurate (even just a tiny bit), it is
worth investigating.

Dividing responsibilities across a team of people makes it easier to detect irregularities

or misappropriated funds.

 Ruined Reputations

Fraud does not just look bad on a company; it looks bad on the whole industry and a
country. “India’s biggest corporate scandal in memory threatens future foreign
investment flows into Asia’s third largest economy and casts a cloud over growth in its
once-booming outsourcing sector.

The news sent Indian equity markets into a tail-spin, with Bombay’s main benchmark
index tumbling 7.3% and the Indian rupee fell”. Now, because of the

Satyam scandal, Indian rivals will come under greater scrutiny by the regulators,
investors and customers.

 Corporate Governance Needs to Be Stronger

The Satyam case is just another example supporting the need for stronger CG. All
public-companies must be careful when selecting executives and top-level managers.
These are the people who set the tone for the company: if there is corruption at the top,
it is bound to trickle-down. Also, separate the role of CEO and Chairman of the Board.
Splitting up the roles, thus, helps avoid situations like the one at Satyam. The Satyam
Computer Services’ scandal brought to light the importance of ethics and its relevance
to corporate culture. The fraud committed by the founders of Satyam 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.



ENRON presented its financial statement in a very complex way which was very difficult to
understand by the shareholders and analysts. The company used accounting loopholes or
limitations to misrepresent earnings and modify the balance sheet to indicate favorable
performance. The sole purpose of this activity was to rig the share price.

Between 1996 and 2000, Enron's revenues increased by more than 750%, rising from $13.3 billion
in 1996 to $100.8 billion in 2000. This extensive expansion of 65% per year was unprecedented in
any industry, including the energy industry which typically considered growth of 2–3% per year to
be respectable.

For just the first nine months of 2001, Enron reported $138.7 billion in revenues, which placed the
company at the sixth position on the Fortune Global500.

In 1992 when Skilling joined the company, he demanded that the trading business adopt mark-to-

market accounting, citing that it would represent "... true economic value." Enron became the first
non-financial company to use the method to account for its complex long-term contracts.

Mark-to-market accounting requires that once a long-term contract was signed, income is
estimated as the present value of net future cash flow. Often, the viability of these contracts and
their related costs were difficult to estimate.

Due to the large discrepancies of attempting to match profits and cash, investors were typically
given false or misleading reports.

Despite so many pitfalls and unethical accounting practices of Enron the U.S. Securities and
Exchange Commission blindly approved of the accounting method of Enron in its trading of
Natural Gas contracts.

The reason for this ignorance is believed to be the funding of the election campaigns of the then
U.S. President George Bush by Enron.

Enron used special purpose vehicles to fund or manage risks associated with specific assets. These
"shell firms" were created by a sponsor, but funded by independent equity investors and debt

In total, by 2001, Enron had used hundreds of special purpose entities to hide its debt. Enron used
a number of special purpose entities, such as partnerships in its Thomas and Condor tax shelters,
financial asset securitization investment trusts (FASITs) in the Apache deal, real estate mortgage
investment conduits (REMICs) in the Steele deal, and REMICs and real estate investment trusts
(REITs) in the Cochise deal.

The special purpose entities were used for more than just circumventing accounting conventions.

As a result of one violation, Enron's balance sheet understated its liabilities and overstated its
equity, and its earnings were overstated.
Enron disclosed to its shareholders that it had hedged downside risk in its own illiquid
investments using special purpose entities.

However, the investors were oblivious to the fact that the special purpose entities were actually
using the company's own stock and financial guarantees to finance these hedges.

This prevented Enron from being protected from the downside risk. Notable examples of special
purpose entities that Enron employed were JEDI, Chewco, Whitewing, and LJM.
Although Enron's compensation and performance management system was designed to retain and
reward its most valuable employees, the system contributed to a dysfunctional corporate culture
that became obsessed with short-term earnings to maximize bonuses. Employees constantly tried
to start deals, often disregarding the quality of cash flow or profits, in order to get a better rating
for their performance review.

Additionally, accounting results were recorded as soon as possible to keep up with the company's
stock price. This practice helped ensure deal-makers and executives received large cash bonuses
and stock options.


Lehman borrowed significant amounts to fund its investing in the years leading to its
bankruptcy in 2008, a process known as leveraging which was invested in housing-related
assets, making it vulnerable to a downturn in that market.

Its leverage ratio, approximately 24:1 in 2003 to 31:1 by 2007. While generating tremendous
profits during the boom, this vulnerable position meant that just a 3–4% decline in the value of
its assets would entirely eliminate its book value of equity.

In August 2007, Lehman closed its subprime lender, BNC Mortgage, eliminating 1,200
positions in 23 locations, and took a $25-million after-tax charge and a $27-million reduction in
goodwill. The firm said that poor market conditions in the mortgage space "necessitated a
substantial reduction in its resources and capacity in the sub prime space".

In March 2010, the report of the Bankruptcy Examiner drew attention to the use of Repo 105
transactions to boost the bank's apparent financial position around the date of the year-end
balance sheet. The attorney general Andrew Cuomo later filed charges against the bank's
auditors Ernst & Young in December 2010, alleging that the firm "substantially assisted a
massive accounting fraud" by approving the accounting treatment.

Repo 105 was used by investment bank Lehman Brothers three times according to the March
2010 report of the bankruptcy court examiner. And Lehman's auditors, Ernst & Young, were
aware of this questionable classification.

On April 12, 2010, a New York Times story revealed that Lehman had used a small company,
Hudson Castle, to move a number of transactions and assets off Lehman's books as a means of
manipulating accounting numbers of Lehman's finances and risks. Hudson Castle was described
as an "alter ego" of Lehman. Lehman owned one quarter of Hudson, Hudson’s board was
controlled by Lehman, and its staff members were former Lehman employees.

On March 17, 2008, following the near-collapse of Bear Stearns - the second-largest
underwriter of mortgage-backed securities - Lehman shares fell as much as 48% on concern it
would be the next Wall Street firm to fail.

On June 9, Lehman announced a second-quarter loss of $2.8 billion, its first loss since being
spun off by American Express, and reported that it had raised another $6 billion from investors.

The firm also said that it had boosted its liquidity pool to an estimated $45 billion, decreased
gross assets by $147 billion, reduced its exposure to residential and commercial mortgages by
20%, and cut down leverage from a factor of 32 to about 25.

However, these measures were perceived as being too little, too late. Over the summer,
Lehman's management made unsuccessful overtures to a number of potential partners. On
Monday September 15, Lehman declared bankruptcy, resulting in the stock plunging 93% from
its previous close on September 12.



On January 7, 2009, Mr. Raju disclosed in a letter to Satyam Computers Limited Board of Directors
that “he had been manipulating the company’s accounting numbers for years”. Mr. Raju claimed that
he overstated assets on Satyam’s balance sheet by $1.47 billion.

Nearly $1.04 billion in bank loans and cash that the company claimed to own was non-existent.
Satyam also underreported liabilities on its balance sheet. Satyam overstated income nearly every
quarter over the course of several years in order to meet analyst expectations.

For example, the results announced on October 17, 2009 overstated quarterly revenues by 75 percent
and profits by 97 percent. Mr. Raju and the company’s global head of internal audit used a number
of different techniques to perpetrate the fraud.

“Using his personal computer, Mr. Raju created numerous bank statements to advance the fraud. Mr.
Raju falsified the bank accounts to inflate the balance sheet with balances that did not exist. He
inflated the income statement by claiming interest income from the fake bank accounts.
Mr. Raju also revealed that he created 6000 fake salary accounts over the past few years and
appropriated the money after the company deposited it. The company’s global head of internal audit
created fake customer identities and generated fake invoices against their names to inflate revenue.

The global head of internal audit also forged board resolutions and illegally obtained loans for the
company”. It also appeared that the cash that the company raised through American Depository
Receipts in the United States never made it to the balance sheets.

Greed for money, power, competition, success and prestige compelled Mr. Raju to “ride the tiger”,
which led to violation of all duties imposed on them as fiduciaries— the duty of care, the duty of
negligence, the duty of loyalty, the duty of disclosure towards the stakeholders.

“The Satyam scandal is a classic case of negligence of fiduciary duties, total collapse of ethical
standards, and a lack of corporate social responsibility. It is human greed and desire that led to fraud.

This type of behavior can be traced to: greed overshadowing the responsibility to meet fiduciary
duties; fierce competition and the need to impress stakeholders especially investors, analysts,
shareholders, and the stock market; low ethical and moral standards by top management; and,
greater emphasis on short‐term performance”.

According to CBI, the Indian crime investigation agency, the fraud activity dates back from April
1999, when the company embarked on a road to double-digit annual growth. As of December 2008,
Satyam had a total market capitalization of $3.2 billion dollars.

Satyam planned to acquire a 51% stake in Maytas Infrastructure Limited, a leading infrastructure
development, construction and project management company, for $300 million.

Here, Raju had a 37% stake; the total turnover was $350 million and a net profit of $20 million.
Raju’s also had a 35% share in Maytas Properties, another real-estate investment firm. Satyam
revenues exceeded $1 billion in 2006. In April, 2008 Satyam became the first Indian company to
publish IFRS audited financials.

On December 16, 2008, the Satyam board, including its five independent directors had approved the
founder’s proposal to buy the stake in Maytas Infrastructure and all of Maytas Properties, which
were owned by family members of Satyam’s Chairman, Ramalinga Raju, as fully owned subsidiary
for $1.6 billion.

Without shareholder approval, the directors went ahead with the management’s decision. The
decision of acquisition was, however, reversed twelve hours after investors sold Satyam’s stock and
threatened action against the management.

This was followed by the law-suits filed in the US contesting Maytas deal. The World Bank banned
Satyam from conducting business for 8 years due to inappropriate payments to staff and inability to
provide information sought on invoices.

Four independent directors quit the Satyam board and SEBI ordered promoters to disclose pledged
shares to stock exchange. Investment bank DSP Merrill Lynch, which was appointed by Satyam to
look for a partner or buyer for the company, ultimately blew the whistle and terminated its
engagement with the company soon after it found financial irregularities.

On 7 January 2009, Saytam’s Chairman, Ramalinga Raju, resigned after notifying board members
and the Securities and Exchange Board of India (SEBI) that Satyam’s accounts had been falsified.
Raju confessed that Satyam’s balance sheet of September 30, 2008, contained the following
He faked figures to the extent of Rs. 5040 crore of non-existent cash and bank balances as against
Rs. 5361 crore in the books, accrued interest of Rs. 376 crore (non-existent), understated liability of
Rs. 1230 crore on account of funds raised by Raju, and an overstated debtor’s position of Rs. 490
He accepted that Satyam had reported revenue of Rs. 2700 crore and an operating margin of Rs. 649
crore, while the actual revenue was Rs. 2112 crore and the margin was Rs. 61 crore”.

In other words, Raju:

1) Inflated figures for cash and bank balances of US $1.04 billion vs. US $1.1 billion reflected in the

2) An accrued interest of US $77.46 million which was non- existent

3) An understated liability of US $253.38 million on account of funds was arranged by himself; and

4) An overstated debtors' position of US $100.94 million vs. US $546.11 million in the books.

Raju claimed in the same letter that “neither he nor the managing director had benefited financially
from the inflated revenues, and none of the board members had any knowledge of the situation in
which the company was placed”.

The fraud took place to divert company funds into real-estate investment, keep high earnings per
share, raise executive compensation, and make huge profits by selling stake at inflated price.

The gap in the balance sheet had arisen purely on account of inflated profits over a period that lasted
several years starting in April 1999. “What accounted as a marginal gap between actual operating
profit and the one reflected in the books of accounts continued to grow over the years.

This gap reached unmanageable proportions as company operations grew significantly”, Ragu
explained in his letter to the board and shareholders. He went on to explain, “Every attempt to
eliminate the gap failed, and the aborted Maytas acquisition deal was the last attempt to fill the
fictitious assets with real ones.

But the investors thought it was a brazen attempt to siphon cash out of Satyam, in which the Raju
family held a small stake, into firms the family held tightly”.

Table 1 depicts some parts of the Satyam’s fabricated ‘Balance Sheet and Income Statement’ and
shows the “difference” between “actual” and “reported” finances. Fortunately, the Satyam deal with
Matyas was “salvageable”. It could have been saved only if “the deal had been allowed to go
through, as Satyam would have been able to use Maytas’ assets to shore up its own books”.

Raju, who showed “artificial” cash on his books, had planned to use this “non-existent” cash to
acquire the two Maytas companies. As part of their “tunneling” strategy, the Satyam promoters had
substantially reduced their holdings in company from 25.6% in March 2001 to 8.74% in March

Furthermore, as the promoters held a very small percentage of equity (mere 2.18%) on December
2008, as shown in Table 2, the concern was that poor performance would result in a takeover bid,
thereby exposing the gap. It was like “riding a tiger, not knowing how to get off without being

The aborted Maytas acquisition deal was the final, desperate effort to cover up the accounting fraud
by bringing some real assets into the business. When that failed, Raju confessed the fraud. Given the
stake the Raju’s held in Matyas, pursuing the deal would not have been terribly difficult from the
perspective of the Raju family.

Unlike Enron, which sank due to agency problem, Satyam was brought to its knee due to tunneling.
The company with a huge cash pile, with promoters still controlling it with a small per cent of shares
(less than 3%), and trying to absorb a real-estate company in which they have a majority stake is a
deadly combination pointing prima facie to tunneling.

The reason why Ramalinga Raju claims that he did it was because every year he was fudging
revenue figures and since expenditure figures could not be fudged so easily, the gap between
“actual” profit and “book” profit got widened every year.

In order to close this gap, he had to buy Maytas Infrastructure and Maytas Properties. In this way,
“fictitious” profits could be absorbed through a “self-dealing” process. The auditors, bankers, and
SEBI, the market watchdog, were all blamed for their role in the accounting fraud.
Table 1:- Fabricated balance sheet and income statement of
Satyam: as of September 30, 2008.

Items Rs in crore Actual Reported Difference

Cash and Bank balance 321 5361 5040

Accrued interest on Bank NIL 376.5 376.5

Fixed Deposits

Understated liability 1230 NONE 1236

Overstated debtors 2161 2651 490


Revenues(FY 2009) 2112 2700 588

Operating profits 61 649 588

Table 2:- Promoter’s shareholding pattern in Satyam

from 2001 to 2008

Year Percentage
March 2001 25.6
2002 22.26
2003 20.74
2004 17.35
2005 15.67
2006 14.02
2007 8.79
2008 8.74

 The Auditors Role and Factors Contributing to


Global auditing firm, PricewaterhouseCoopers (PwC), audited Satyam’s books from June
2000 until the discovery of the fraud in 2009. Several commentators criticized PwC harshly
for failing to detect the fraud.

Indeed, PwC signed Satyam’s financial statements and was responsible for the numbers under
the Indian law. One particularly investors, weak independent directors and audit committee,
and whistle-blower policy not being effective. troubling item concerned the $1.04 billion that
Satyam claimed to have on its balance sheet in “non-interest bearing” deposits.

According to accounting professionals, “any reasonable company would have either invested
the money into an interest-bearing account, or returned the excess cash to the shareholders.
The large amount of cash thus should have been a ‘red-flag’ for the auditors that further
verification and testing was necessary.

Furthermore, it appears that the auditors did not independently verify with the banks in which
Satyam claimed to have deposits”.

The Indian arm of PwC was fined $6 million by the SEC (US Securities and Exchange
Commission) for not following the code of conduct and auditing standards in the performance
of its duties related to the auditing of the accounts of Satyam Computer Services.

The following is a list of factors that contributed to the

 Greed

 Ambitious corporate growth

 Lack of transparency

 Excessive interest in maintaining stock prices

 Executive incentives

 Stock market expectations

 Nature of accounting rules

 ESOPs issued to those who prepared fake bills

 High risk deals that went sour

 Audit failures (internal and external)

 Aggressiveness of investment and commercial banks,

 Rating agencies

Additionally, the Satyam fraud went on for a number of years and involved both the
manipulation of balance sheet and income statement. Whenever Satyam needed more
income to meet analyst estimates, it simply created “fictitious” sources and it did so
numerous times, without the auditors ever discovering the fraud.

Suspiciously, Satyam also paid PwC twice what other firms would charge for the audit,
which raises questions about whether PwC was complicit in the fraud. Furthermore, PwC
audited the company for nearly 9 years and did not uncover the fraud, whereas Merrill
Lynch discovered the fraud as part of its due diligence in merely 10 days.

Missing these “red-flags” implied either that the auditors were grossly inept or in collusion
with the company in committing the fraud. PWC initially asserted that it performed all of
the company’s audits in accordance with applicable auditing standards.

Numerous factored contributed to the Satyam fraud. The independent board members of
Satyam, the institutional investor community, the SEBI, retail investors, and the external
auditor—none of them, including professional investors with detailed information and
models available to them, detected the malfeasance.

Immediately after Raju’s revelation about the accounting fraud, “new” board members were
appointed and they started working towards a solution that would prevent the total collapse
of the firm.

The Indian government “immediately started an investigation, while at the same time
limiting its direct participation, with Satyam because it did not want to appear like it was
responsible for the fraud, or attempting to cover up the fraud”.

The Government appointed a “new” board of directors for Satyam to try to save the
company. The Board’s goal was “to sell the company within 100 days”. To devise a plan of
sale, the board met with bankers, accountants, lawyers, and government officials

It worked diligently to bring stability and confidence back to the company to ensure the sale
of the company within the 100-day time frame. To accomplish the sale, the board hired
Goldman Sachs and Avendus Capital and charged them with selling the company in the
shortest time possible.

By mid-March, several major players in the IT field had gained enough confidence in
Satyam’s operations to participate in an auction process for Satyam. The Securities and
Exchange Board of India (SEBI) appointed a retired Supreme Court Justice, Justice
Bharucha, to oversee the process and instill confidence in the transaction.

Several companies bid on Satyam on April 13, 2009. The winning bidder, Tech Mahindra,
bought Satyam for $1.13 per share—less than a third of its stock market value before Mr.
Raju revealed the fraud—and salvaged its operations. Both Tech Mahindra and the SEBI are
now fully aware of the full extent of the fraud and India will not pursue further


Corporate frauds and the outcry for transparency and honesty in reporting have given rise to
two outcomes. First, forensic accounting skills have become very crucial in untangling the
complicated accounting maneuvers that have obfuscated financial statements. Second,
public demand for change and subsequent regulatory action has transformed CG scenario
across the globe.

In fact, both these trends have the common goal of addressing the investors’ concerns about
the transparent financial reporting system. The failure of the corporate communication
structure, therefore, has made the financial community realize that “there is a great need for
skilled professionals that can identify, expose, and prevent structural weaknesses in three
key areas: poor corporate governance, flawed internal controls, and fraudulent financial

In addition, the CG framework needs to be first of all strengthened and then implemented in
“letter as well as in right spirit”. The increasing rate of white-collar crimes, without doubt,
demands stiff penalties and punishments.

The ENRON Scandal (2001) and Lehman Bros. Bankruptcy (2008) went on to become the most
notorious scams in the history as one led to stricter regulations for Corporate Governance and
other had global impact and went on to become one of the major causes of Global Economic
Crisis-2008-12. ENRON and LEHMAN were some of the biggest companies of U.S.A. but did
not behave ethically in contrast to their status, in order to move fast they only maintained their
stock price and keep up with the high performance rankings. They also indulged in dubious
accounting practices to hide the true picture such as kept off huge debts from the balance sheet
and hide the failures of long term deals. These scandals also questions the bureaucrats involved
who turned a blind eye to the practices by these companies. These scandals once again
emphasized the need of teaching ethics and responsibilities to our future professionals and
encourage them to do the right thing.

Perhaps, no financial fraud had a greater impact on accounting and auditing profession than
Enron, recently, India’s Enron: “Satyam”. All these frauds have led to the passage of the
Sarbanes-Oxley Act in July 2002, and a new federal agency and financial standard-setting
body, the Public Companies Accounting Oversight Board (PCAOB).

It also was the impetus for the American Institute of Certified Public Accountants’ (AICPA)
adoption of SAS No. 99, “Consideration of Fraud in a Financial Statement Audit”. But it
may be that the greatest impact of Enron and WorldCom was in the significant increased
focus and awareness related to fraud.

It establishes external auditors’ responsibility to plan and perform audits to provide a

reasonable assurance that the audited financial statements are free of material frauds.

As part of this research study, one of the key objectives was “to examine and analyze in-
depth the Satyam Computers Limited’s accounting scandal by portraying the sequence of
events, the aftermath of events, the key parties involved, major reforms undertaken in India,
and learn some lessons from it”.

Unlike Enron, which sank due to “agency” problem, Satyam was brought to its knee due to
“tunneling”. The Satyam scandal highlights the importance of securities laws and CG in
emerging markets.

The fraud committed by the founders of Satyam 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”.

All kind of scandals/frauds have proven that there is a need for good conduct based on
strong ethics. The Indian government, in Satyam case, took very quick actions to protect the
interest of the investors, safeguard the credibility of India, and the nation’s image across the
world. Moreover, Satyam fraud has forced the government to re-write CG rules and
tightened the norms for auditors and accountants.

The Indian affiliate of PwC “routinely failed to follow the most basic audit procedures.

The SEC and the PCAOB fined the affiliate, PwC India, $7.5 million which was described
as the largest American penalty ever against a foreign accounting firm”.

According to President, ICAI (January 25, 2011), “The Satyam scam was not an accounting
or auditing failure, but one of CG. This apex body had found the two PWC auditor’s prima-
facie guilty of professional misconduct”.

The CBI, which investigated the Satyam fraud case, also charged the two auditors with
“complicity in the commission of the fraud by consciously overlooking the accounting

But, in the end, truth is sought and those violating the legal, ethical, and societal norms are
taken to task as per process of law. The public confession of fraud by Mr. Ramalinga Raju
speaks of integrity still left in him as an individual.

His acceptance of guilt and blame for the whole fiasco shows a bright spot of an otherwise
“tampered” character. The fraud finally had to end and the implications were having far
reaching consequences. Thus, Satyam scam was not an accounting or auditing failure, but
one of CG.

Undoubtedly, the government of India took prompt actions to protect the interest of the
investors and safeguard the credibility of India and the nation’s image across the world. In
addition, the CG framework needs to be strengthened, implemented both in “letter as well as
in right spirit”, and enforced vigorously to curb white-collar crimes.


 Increase the scrutiny on companies

 Increase the accountability of directors on company’s decisions
 Inducing high moral and ethical values in young managers
 Implementation of ethics while taking a decision in corporate world
 Teaching future managers to do what is right
 Improve Corporate Governance in the companies
 Increase the accountability of the auditor on company’s financial statements











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