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)

Circumstance: Failure of Maytas acquisitionReasons for fraud:

Low profit marginMaintenance of share pricePrevention of takeoverSituation gone out of hand

Answer

COULD THIS FRAUD HAVE BEEN PREVENTED?

WHO COULD HAVE PREVENTED IT?

Q2)

Fraud could have been preventedParties who could have prevented it:

Board of DirectorsAuditorsBankers

Answer

CRITICALLY EVALUATE THE CORPORATE GOVERNANCE MECHANISMS ADOPTED BY

SATYAM.

Q3)

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

ASSESS THE RESPONSIBILITY OF THE AUDIT COMMITTEE AS WELL AS INTERNAL AND STATUTORY AUDITORS IN RELATION

TO SATYAM’S SCANDAL.

Q4)

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

EVALUATE THE STATEMENT MADE BY THE CHAIRMAN IN HIS

RESIGNATION.

Q5)

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

WHAT CHARACTERISTICS OF THE BOARD OF DIRECTORS PLAY A ROLE IN

PREVENTING FINANCIAL STATEMENT FRAUD?

Q6)

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

DO YOU THINK THAT MAKING REGULATORY CHANGES WOULD HELP

IN PREVENTING THE FRAUD?

Q7)

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

WHAT IS THE LESSON LEARNED FROM THIS CASE?

Q8)

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