Corporate Scandal Shakes India
by Niraj Sheth, Jackie Range and Geeta Anand
The Wall Street Journal
Jan 08, 2009
TOPICS: Accounting, Audit Committee, Audit Quality, Auditing, Corporate
SUMMARY: The found chairman of the Indian outsourcing company Satyam, B.
Ramalinga Raju, wrote a letter of resignation to his Board of Directors in which he said
that he ".
..overstated profits for the past several years, overstated the amount of debt
owed to the company and understated its liabilities." Raju prepared the portion of the
financial statements that presented over $1 billion in cash when in fact the cash balances
were about $66 million. He finally wrote the letter when ".
..the scheme reached 'simply
unmanageable proportions' and he was left in a position that was 'like riding a tiger, not
knowing how to get off without being eaten.'" The scandal has raised questions about the
role of the auditors, PricewaterhouseCoopers, and the company's Board of Directors,
particularly its audit committee. It also has left Indian investors lacking confidence in
other Indian investments.
CLASSROOM APPLICATION: Auditing and management classes may use this article
to discuss corporate governance issues, the role of the audit committee, and the question
of whether the Satyam Board contained a financial expert as required by Sarbanes-Oxley
and supporting SEC regulations.
1. (Introductory) Based on the description in the article, what methods did Mr. Ramalinga
Raju say that he had used to improperly inflate Satyam's financial results for the past
2. (Introductory) What financial controls should prevent fraud, particularly fraud of this
3. (Advanced) What audit procedures should Satyam's auditors, PricewaterhouseCoopers,
have undertaken that may have uncovered the fraud prior to the time of Mr. Raju's letter?
4. (Advanced) What is corporate governance? What role does accounting and auditing
play in upholding proper corporate governance?
5. (Advanced) Refer to the first related article. What impact does the Satyam scandal
have on the regulatory environment in India? What factors in India make it difficult,
more difficult than, say, in the U.S., to implement such changes in corporate governance