F012215491 - Corporate Scandal Shakes India by Niraj Sheth,...

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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 Governance 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. QUESTIONS: 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 several years? 2. (Introductory) What financial controls should prevent fraud, particularly fraud of this magnitude? 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 behaviors?
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Trustees? What is the role of this committee with respect to a fraud, such as this one committed at Satyam? 7. (Introductory) Refer to the second related article in which a corporate governance review firm notes that it questioned Satyam's fulfillment of U.S. requirements for an audit committee financial expert. What is an audit committee financial expert under SEC guidelines developed to implement the requirements of Sarbanes-Oxley? Reviewed By: Judy Beckman, University of Rhode Island
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This note was uploaded on 10/20/2010 for the course ACCOUNTING f0122 taught by Professor Gatot during the Spring '10 term at Bina Nusantara University.

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F012215491 - Corporate Scandal Shakes India by Niraj Sheth,...

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