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By:_____
Governance Failure
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DISCUSS THE CIRCUMSTANCES UNDER WHICH THE SATYAM SCAM WAS EXPOSED.
WHAT ACCORDING TO YOU WERE THE REASONS OF THE FRAUD?
Q1)
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Circumstance: Failure of Maytas acquisitionReasons for fraud:
Low profit marginMaintenance of share pricePrevention of takeoverSituation gone out of hand
Answer
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COULD THIS FRAUD HAVE BEEN PREVENTED?
WHO COULD HAVE PREVENTED IT?
Q2)
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Fraud could have been preventedParties who could have prevented it:
Board of DirectorsAuditorsBankers
Answer
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CRITICALLY EVALUATE THE CORPORATE GOVERNANCE MECHANISMS ADOPTED BY
SATYAM.
Q3)
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IFRS complianceLeader in HR policiesAwards for best corporate governanceOne of 10 most well-regarded Indian
companiesClients list included one-third of Fortune 500
companies
Answer
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ASSESS THE RESPONSIBILITY OF THE AUDIT COMMITTEE AS WELL AS INTERNAL AND STATUTORY AUDITORS IN RELATION
TO SATYAM’S SCANDAL.
Q4)
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Main role of auditors is to assess truth and fairness of financial statements
To verify veracity of assets and liabilities in the balance sheet
Implicit contract of faith and trust with investors and other stakeholders
Watchdog of companies on behalf of government
Answer
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EVALUATE THE STATEMENT MADE BY THE CHAIRMAN IN HIS
RESIGNATION.
Q5)
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Letter’s tone tried to make it seem like a noble, selfless act
Conveyed the details of fraud as if the letter was an annual report
Tried coming across as a victim of circumstance instead of mastermind fraudster
Absolved family from all knowledge of his wrongdoing
Had courage to dictate post-disaster course of action
Answer
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WHAT CHARACTERISTICS OF THE BOARD OF DIRECTORS PLAY A ROLE IN
PREVENTING FINANCIAL STATEMENT FRAUD?
Q6)
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Board should be accountable for financial reports projected
More power to independent directorsDirectors must have an active roleMust do their own due diligence rather than
take CEO’s word for granted
Answer
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DO YOU THINK THAT MAKING REGULATORY CHANGES WOULD HELP
IN PREVENTING THE FRAUD?
Q7)
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Institute strong internal controlsInternal auditors must report directly to
boardGovernment must ensure that statutory
audit must be done by neutral, unbiased party
A need for surprise audits by tax authorities in big companies
Answer
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WHAT IS THE LESSON LEARNED FROM THIS CASE?
Q8)
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Importance of corporate governanceRegulations to stop such frauds3 fold audit team failedDespite having 5 independent directors failure to
catch fraudLack of governance at multiple levels
• The board• The bank• SEBI• Auditors
Answer
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