Satyam’s Manipulative Accounting Methodology Unveiled: An Experience of an Asian Economy

MADAN LAL BHASIN

Abstract


Manipulative accounting practices are perennial and such practices have occurred in all eras, in all countries and affected millions of corporations. Unfortunately, there are few loopholes in accounting and auditing standards, which provide leeway and thus motivate accounting professionals to use aggressively manipulation practices. In fact, manipulative accounting (MA) involves the intentional cooking-up of financial records towards a pre-determined target. Every company indeed maneuvers the numbers, to a certain extent, as formally reported in its financial statements (FS) to achieve budgetary targets and generously reward senior managers. From Enron, WorldCom to Satyam, it appeared that window-dressing leading to MA is a serious problem that is increasing both in its frequency and severity, which undermines the integrity of financial reports and eroded investors’ confidence. The responsibility of preventing, detecting and investigating financial frauds rests squarely on Board of Directors and they should adopt preventive steps. Despite the raft of CG, and financial disclosure reforms, corporate accounting still remains murky and companies continue to find ways to play ‘hide-and-seek’ game with the system. Satyam computers were once the crown jewel of Indian IT-industry but were brought to the ground by its founders in 2009 as a result of financial manipulations in FS. The present study provides a snapshot of how Mr. Raju (CEO and Chairman) mastermind this maze of AM practices? Undoubtedly, Satyam scam is illegal and unethical in which computers were cleverly used to manipulate account books by creating fake invoices, inflating revenues, falsifying the cash and bank balances, showing non-existent interest on fixed deposits, showing ghost employees, and so on. Satyam fraud has shattered the dreams of investors, shocked the government and regulators and led to questioning of the accounting practices of auditors and CG norms in India. Finally, we recommend that “All types of MA practices should be legally recognized as a serious crime, and accounting bodies, law courts and regulatory authorities must adopt exemplary punitive measures to prevent such unethical practices.”


Keywords


Corporate governance, forensic accounting, financial statements, Manipulative accounting, India.

Full Text:

PDF

References


AICPA (2002), Consideration of fraud in a financial statement audit. Statement on Auditing Standards No.99, NY.

Adkins, T. (2016), Financial Statement Manipulation: An Ever-Present Problem for Investors. Available at http://www.investopedia.com.

Asif, M.K., Rehana, F. and Mamunur, R. (2011), Cosmetic Accounting Practices in Developing Countries: Bangladesh Perspectives, World Journal of Social Sciences, 1(3), July, 1-15.

Bhasin, M.L. (2007). Forensic Accounting: A New Paradigm for Niche Consulting. The Chartered Accountant, Jan., 1000-1010.

Bhasin, M.L. (2008). Corporate Governance and Role of the Forensic Accountant. The Chartered Secretary. 38(10), Oct., 1361-1368.

Bhasin, M.L. (2010). Corporate Governance Disclosure Practices: The Portrait of a Developing Country. International Journal of Business and Management. 5(4), April, 150-167.

Bhasin, M.L. (2011). Corporate Governance Disclosure Practices: The Portrait of a Developing Country. International Review of Business Research Papers. 7(1), Jan., 393-419.

Bhasin, M.L. (2012). Corporate Accounting Frauds: A Case Study of Satyam Computers Limited. International Journal of Contemporary Business Studies. Oct., 3(10), 16-42.

Bhasin, M.L. (2012a). Audit Committee Mechanism to Improve Corporate Governance: Evidence from a Developing Country. Modern Economy. 3(11), Nov. 856-72.

Bhasin, M.L. (2013). Corporate Accounting Scandal at Satyam: A Case Study of India’s Enron. European Journal of Business and Social Sciences. 1(12), March, 25-47.

Bhasin, M.L. (2013a). Corporate Accounting Fraud: A Case Study of Satyam Computer Limited. Open Journal of Accounting. April, 2(2), 26-38.

Bhasin, M.L. (2013b). Corporate Governance and Role of the Forensic Accountant: An Exploratory Study of an Asian Country. Amity Business Review. 14(1), Jan-June, 48-71.

Bhasin, M.L. (2015). Forensic Accounting: Perspectives and Prospects. Pakistan Accountant. Oct.-Dec., pp. 44-48.

Bhasin, M.L. (2015a). Menace of Frauds in Banking Industry: Experience of a Developing Country. Australian Journal of Business and Management Research. 4(12), April, 21-33.

Bhasin, M.L. (2015b). Creative Accounting Practices in the Indian Corporate Sector: An Empirical Study. International Journal of Management Science and Business Research. 4(10), 35-52.

Bhasin, M.L. (2016). Debacle of Satyam Computers Limited: A Case Study of India’s Enron. Wulfenia Journal KLAGENFURT. 23(3), March, 124-162.

Bhasin, M. L. (2016a). Survey of Creative Accounting Practices: An Empirical Study. Wulfenia Journal KLAGENFURT. 23(1), Jan., 143-162.

Bhasin, M.L. (2016b). Unethical Creative Accounting Culture at Satyam Computers Limited: A Case Study of India’s Enron. International Journal of Business and Social Research. 6(7), 24-48.

Bhasin, M.L. (2016c). Strengthening Corporate Governance through an Audit Committee: An Empirical Study. Wulfenia Journal. 23(2), Feb., 2-27.

Bhasin, M.L. (2016d). Contribution of Forensic Accounting to Corporate Governance: An Exploratory Study of an Asian Country. International Business Management. 10(4), 479-492.

Bhasin, M.L. (2016e), The Challenge of Improving Corporate Governance by Creating Effective Audit Committees, International Journal of Management Sciences and Business Research, 5(8), 25-46.

Bhasin, M.L. (2016f), Perspectives and Prospects of An Audit Committee in An Asian Economy: An Empirical Study, International Journal of Management Sciences and Business Research, 5(8), 1-14.

Bhasin, M.L. (2016g), Creative Accounting Scam at Satyam Computer Limited: How the Fraud Story Unfolded?, Open Journal of Accounting, 5(4), 57-81.

Bhasin, M.L. (2016h), Unethical Accounting Practices in Connivance with Top Management: A Case Study of Satyam, International Journal of Management Sciences and Business Research, 5(9), 5-19.

Caskey, J. and Laux, V. (2015), Corporate Governance, Accounting Conservatism, and Manipulation. Available at SSRN: http://ssrn.com/abstract=2251378.

Chopra, A. (2011). Satyam fraud, not an accounting failure. Business Standard. 25 January. Available at http://www.business-standard.com.

Gupta, P.K. & Gupta, S. (2015) Corporate frauds in India: Perceptions and emerging issues. Journal of Financial Crime, 22(1):79-103.

Grant Thornton and ASSOCHAM (2006), Financial and Corporate Frauds, July. Available at www.grantthornton.in.

Hayat, U. (2014), The Sherlock Holmes of Accounting: Howard Schilit Explains the Mystery of His Art, 4 March. Available at https://blogs.cfainstitute.org.

ICAI (2009). ICAI finds ex Satyam CFO, Price Waterhouse auditors guilty. www.outlook India.com.

ICAI (2014). The Institute of Chartered Accountants of India has imposed a life-time ban on four auditors, April 22.

Jones, M. (2011). Creative accounting, fraud and international accounting scandals, John Wiley & Sons Ltd. London.

Kaul, V. (2015). Satyam scam: Ramalinga Raju, the man who knew too much, gets 7 years in jail, April 10.

Krishnan, A. (2014). Finally, the truth about Satyam, The Hindu Business Line, July 18.

Mamo, J. and Aliaz, A. (2014), Accounting Manipulation and its Effects in the Financial Statements of Albanian Entities, Interdisciplinary Journal of Research and Development, 1(2), 55-60.

Niazi, A. and Ali, M. (2015), The Debacle of Satyam Computers Ltd.: A Case Study from Management’s Perspective, Universal Journal of Industrial and Business Management, 3(2), 58-65.

Pai, K. & Tolleson, T.D. (2015). India’s Satyam Scandal: Evidence too Large to Indict Mindset of Accounting Regulators is a Global Phenomenon. Review of Business and Finance Studies. 6(2), 35-43.

Ramana, K.V. (2009). 7,561 fake invoices=Rs.5,117 crore Sales. April 15, Daily News Analysis. Available at http://www.dnaindia.com.

SEC (2016), Business and Financial Disclosure Required by Regulation S-K, available at https://www.sec.gov/rules/concept/2016/33-10064.pdf

Schilit, H.M. and Perler, J. (2010), Financial Shenanigans, Third Edition, Tata McGraw-Hill Education Limited, New Delhi.

SFIO (2009). Special Fraud Investigation Office Report published in the Pioneer. New Delhi, May 4, 1-10.

Sherman, H.D. & Young, S.D. (2016), Where Financial Reporting Still Falls Short, Harvard Business Review, July–August.

Shirur, S. (2011). Tunneling vs. Agency Effect: A Case Study of Enron and Satyam. Vikalpa. 36(3), 9-20.

Veena L. Brown, Brian E. Daugherty, & Julie S. Persellin (2014). Satyam Fraud: A Case Study of India’s Enron. Issues in Accounting Education. August, 29(3), 419-442.

Winkler, D. (2010). India’s Satyam Accounting Scandal. Feb.1. Available online at http://blogs.law.uiowa.edu.

Wharton (2009). Scandal at Satyam: Truth, Lies and Corporate Governance. Available at knowledge@wharton website.




DOI: http://dx.doi.org/10.18533/ijbsr.v6i12.1010

Refbacks

  • There are currently no refbacks.




Copyright (c) 2017 MADAN LAL BHASIN

 ...........................................................................................................................

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.

............................................................................................................................

If you find difficulties in submitting manuscript please forward your doc file to support@thejournalofbusiness.org. Our support team will assist you in submission process and other technical matters.

In order to get notifications on inbox please add  this domain thejournalofbusiness.org in your email safe list.

International journal of business and social research (Print)
ISSN 2164-2540

International journal of business and social research (Online)
ISSN 2164-2559

[International Journal of Business and Social Research (IJBSR) previously published by MIR Center for Socio-Economic Research, MD, USA. From February 2018 this journal is published by the LAR Center Press, OR, USA]