 Introduction:

The Satyam scam is one of the biggest accounting scams in India. The scam
was done by the company Satyam Computers. Satyam Computers was formerly
the crown jewel of the Indian Information Technology (IT) industry, but its
founders brought it to its knees in 2009 owing to financial misconduct. Satyam's
abrupt demise spurred a discussion over the CEO's role in driving a company to
new peaks of success, as well as the CEO's interaction with the Board of Directors
and the establishment of crucial committees. The controversy highlighted the
significance of corporate governance (CG) in the development of auditing
committee standards and member of the board duties. The Satyam scam case
shocked the market, especially Satyam investors, and it also harmed India's image
in the worldwide market. So, let's delve into the topic by understanding what is
Satyam scam.

 What is Satyam Scam?

Satyam scam means a huge corporate fraud committed in 2009 by Ramalinga

Raju, the founder and chairman of Satyam Computer Services. He admitted to
exaggerating sales, earnings, cash balances, and personnel numbers in the
company's books. He also acknowledged siphoning off money from the firm for
his personal use. The Satyam fraud was considered worth Rs. 7800 crores and was
formerly regarded as India's largest business scandal.

The Satyam scam highlighted a lack of corporate governance, auditing standards,

regulatory monitoring, and ethical behavior at one of India's largest IT firms. It
also damaged the faith and confidence of Indian IT sector investors, consumers,
workers, and stakeholders. The Satyam Computers scam had serious consequences
for the corporation, its auditors, its board of directors, and its stockholders.

 Understanding Satyam Scandal - India's Biggest Accounting Fraud:

The Satyam Computers scam exemplifies one of India's most catastrophic scams,
sending shockwaves across the business world. Ramalinga Raju, the founder and
chairman of Satyam Computer Services, admitted to falsifying the company's
accounting for many years in 2009. This disclosure surprised investors, workers,
and regulators, ruining Satyam's and the Indian business community's image.
The Satyam scam was a methodically planned effort to defraud stakeholders. Raju
and a small group of accomplices increased sales, earnings, and cash levels,
providing a false sense of financial accomplishment. Forging bank statements,
faking invoices, and inflating customer numbers were all part of the fraudulent
operations. Auditors tasked with protecting shareholders' interests failed to
discover the anomalies, showing the failure of corporate governance processes.

The results were devastating. Share prices fell precipitously, causing substantial
capital destruction for investors. As the corporation fought to survive, thousands of
workers faced uncertainty. The Satyam scandal damaged local and foreign
investors' faith in India's business sector, generating concerns about transparency,
accountability, and ethical standards. Following the incident, the Indian
government intervened to avert Satyam's collapse and preserve stakeholders'
interests. Tech Mahindra finally purchased the firm, kicking off a lengthy path to
recovery. The episode was a wake-up call for Indian regulators, prompting
substantial changes in corporate governance, accounting methods, and audit rules.

The Satyam controversy is a sharp reminder of the significance of strong

regulatory supervision, ethical behavior, and good corporate governance in
sustaining company confidence and integrity.

 Satyam Scam Case Study: How Did the Raju Brothers Do Satyam
Scam?

In 2003, Raju started falsifying Satyam's financial records to depict a more rosy
image of growth and profitability than the firm has actually accomplished. Raju
participated in a web of deception with his brother Rama Raju, Satyam's managing
director, and a group of top executives, faking audit reports and generating bogus
invoices, clients, bank accounts, and even employees. To make things worse, Raju
used Satyam's finances to invest in his family's enterprises, such as Maytas, for
personal benefit in real estate and other projects.

Raju deceived authorities, auditors, investors, and analysts for six years, who were
caught off guard by his faked data and bogus awards. In 2008, Satyam's stock price
jumped from Rs. 10 to Rs. 544, making it one of India's most valuable IT firms.
The firm has also received social responsibility and corporate governance awards,
including the Golden Peacock Award in 2008.
However, the facade started to disintegrate towards the end of 2008, coinciding
with the global financial crisis, which ravaged the IT sector. Raju faced increased
pressure from lenders and creditors to settle his obligations as Satyam's sales and
profitability decreased. Furthermore, the World Bank examined his behavior and
barred Satyam from participating in its projects for eight years owing to Raju's
illicit employee benefits.

In a desperate effort to save his disintegrating enterprise, Raju used Satyam's

financial reserves in December 2008 to launch an ill-fated $1.6 billion offer for
Maytas. This strategy, however, backfired catastrophically, sparking a furious
uproar from Satyam shareholders and board members who saw the transaction as a
diversion of cash and a blatant conflict of interest. Raju had just 12 hours to cancel
the deal, but Satyam's stock price had dropped by 55% by then.

Raju ultimately admitted to his deceptions after being cornered and given no other
choice. On January 7, 2009, he acknowledged inflating Satyam's assets by a
stunning Rs. 7,800 crores, accounting for approximately 94% of the company's
assets, in a letter to Satyam's Board of Directors and authorities. Furthermore, he
admitted to overstating Satyam's revenues by Rs. 5,040 crores, accounting for
nearly 75% of the company's revenue. Raju said he worked independently and that
neither his auditors nor board members knew of his illegal operations.

The Serious Fraud Inquiry Office (SFIO), the Securities and Exchange Board of
India (SEBI), and the Central Bureau of Investigation (CBI) launched a thorough
inquiry in response to Raju's admission. Raju and his associates were caught and
charged with various offences, including money laundering, insider trading,
forgery, criminal conspiracy, breach of trust, account falsification, and forgery.
  Government’s Reaction to Satyam Scam

The Satyam fraud case taught India a lot. Indian law is continually evolving.
However, this is how the government responded to the Satyam Scam:

Steps Description

Companies Act The Companies Act of 1956 was

abolished, and the Companies Act of
2013 took effect. Corporate fraud is a
criminal offence under the new act's
terms. The statute explicitly defines
and identifies cost accountants,
auditors, and corporate secretaries as
obligated to disclose Satyam fraud.
ICAI- The Institute of Chartered The accounting organization
Accountants of India underlined the auditors' comprehensive
reporting of fictional assets &
contingent liabilities in its audit report.
SEBI The SEBI Regulations 2015 (Listing
Obligations and Disclosure
Requirements) were enacted, and they
established criteria for reporting actual
and suspected frauds and disclosing
important events that influence the
decision-making ability of investors
Serious Fraud Investigation Office This regulatory authority, constituted
(SFIO) under the administration of the
Ministry of Corporate Affairs, was
given the status of a statutory
organization under the Companies Act
of 2013. In India, it looks into business
and accounting fraud. Corporate
governance best
practices have become an urgent
need.
  Who Exposed the Satyam Scam?

The Satyam scam was exposed by an anonymous whistleblower who sent emails to
one of the company’s directors, Krishna Palepu, revealing the fraud. Palepu
forwarded the emails to another director and S. Gopalakrishnan, a partner at PwC,
the auditor of Satyam. The emails were sent from the alias Joseph Abraham. The
whistleblower also alerted the SEBI and the media about the scam. The emails
prompted an investigation by the regulators and the auditors, eventually leading to
Raju’s confession and arrest.

 Satyam Scam Case Study: How Raju was Able to Get Away with the
Scandal?

Raju got away with the Satyam scam for six years by exploiting flaws in the
accounting and auditing procedures and deceiving stakeholders with his power and
charm. He had a network of accomplices with his brother Rama Raju, Satyam's
managing director, and several senior executives. He also paid World Bank
officials and other clients to get contracts and evade inspection.

PricewaterhouseCoopers (PwC), Satyam's auditor, was Raju's key ally in the

scheme. PwC failed to undertake its obligation of evaluating Satyam's financial
statements and discovering fraud. PwC violated auditing standards and the code of
conduct and was involved in falsifying the accounts with Raju. PwC also
overlooked red signals from whistleblowers who revealed the theft in anonymous
emails to one of Satyam's directors, Krishna Palepu.

Raju also utilized his influence and reputation to gain the confidence and
admiration of regulators, investors, analysts, and the media. He depicted Satyam as
a successful and ethical firm, collecting multiple corporate governance and social
responsibility awards. He was also recognized for his commercial skills and
entrepreneurship. He kept a low profile and a modest manner to avoid suspicion or
criticism.

Raju's scheme was discovered in 2009 when he attempted to purchase Maytas, a

family-owned real estate firm, using Satyam's financial reserves. This decision
backfired, resulting in a major outcry from Satyam's shareholders and board
members.

Raju decided to come clean and admit his deception with no other option. On
January 7, 2009, he admitted in a letter to Satyam's board and regulators that he
had overstated Satyam's assets by Rs. 7,800 crores, or almost 94% of its total
assets. He said he operated alone and that none of his board members or auditors
knew of his deception.
  Highlights of the Satyam Scandal

● Satyam had won the Golden Peacock Award for Corporate Accountability in
2008, around five months before the Satyam scam was revealed.
● The same year, Mr Ramlinga Raju received the Ernst and Young Young
Entrepreneur Award.
● When read backwards, SATYAM is MAYTAS, the real estate business Mr
Raju sought to buy.
● Satyam was barred from conducting business with its connections for an eight-
year term by the World Bank.
● PwC, the external audit company, has been barred from providing assurance
and auditing services to publicly traded firms for over two years.
● Satyam is known as the "Enron Scandal of Indian History." Enron was the
largest accounting and business fraud in the United States, contributing to Wall
Street's demise.

 Conclusion

The Satyam scam case demonstrates how human avarice and ambition influence
behavior. The Satyam scandal emphasizes the need for ethics, solid governance,
and accounting standards. Securities legislation and corporate governance are
required in emerging markets such as India. Satyam Computers scam sparked more
strict regulations. Investigating big financial crimes aids in the prevention of future
incidents and encourages best practices.