Introduction

It was December 2008, India faced its biggest shakeup in the realm of corporate governance and ethics in the Satyam debacle On January 7 2009, Company chairman Mr. B.Ramalinga Raju resigned after notifying board members and SEBI that satyam's accounts had been falsified The total outflow of Maytas Infrastructure was expected to be US$ 1.6 billion This is the move that sparked a row over alleged violation of corporate governance laws

Contd..

That deal was not profitable for investors. So after that announcement they started to raise their voices against the deal Mr. Raju was charged with several offences including conspiracy, cheating, criminal breach of trust and forgery Later, the five boxes of original land documents of as many as 147 firms floated by the relatives of Raju, were seized by the state police It was the first time in the history of corporate India that chartered accountants had been held on account of flawed editing Prince water house coopers (PWC) announced that its reliance on potentially false information provided by the management of Satyam may have rendered its audit reports "inaccurate and unreliable

Consequences
On February 2009, two senior executives of satyam had been asked to leave generated mixed reactions Since then, several senior employees have left or have been offered jobs by other IT companies Two law firms of United States have filed class action lawsuit against satyam and its board members The unfolding of Mr.Rajus story has resulted in satyam being stripped of the Golden Peacock Award Other IT companies have gained by the losses of satyam in terms of clients, experienced and well-trained talent

New Management
The six-member board appointed by Govt. of India named A.S.Murthy as the new CEO of the firm with immediate effect Murthy, an electrical engineer, has been with Satyam since January 1994 and was heading the Global Delivery Section before being appointed as CEO of the company He asked all the staff to help in reducing the operational expenses to get satyam back on track With the change in the management, World bank announced that thy were open to lifting their eight-year old ban imposed in 2008 on using satyam as a vendor

Never Waste a Crisis

Many investors, employees and customer Critical balance of leadership governance, accountability, and trust Orchestrators of the fraud did not act alone.

Governance Failure
Survive in large organization without the complicity of others whose own decision making orientations serve to the preserve, protect, and buffer the entrepreneurs from over sight and governance review. The economist recently examined such groups in an article entitled as PHAROAH CAPTITALISM The regulatory refused to mentioned about critical balance of leadership governance, accountability and trust.

Like riding a Tiger

First, its the largest financial fraud occurred in India Second, the company is operated within the framework of securities law and governance requirements in both India and US. (regd under NY stock Exchange). Mr. Raju was an hard worker and great talent. He handled the entire stress but finally he himself Explained the massive fraud that he had perpetrated on the board satyam investors, and the world.

Bad Apple Theory

Thoughts on Reform

The company has been a source and pride and symbol of the Indian economic promise. The economic era ahead will be challenging for companies. In up coming years the pressure will be more to deal with the Entrepreneurialism.

What should we do ?
Establish professional code of ethical conduct for all India Enterprises.. There should be an control over the whistle blowers and should encourage them and safeguarded. Public transparency is essential. It is an opportunity to rejoin economic interests and ethical interest through sound corporate governance and genuine accountability.

Regulatory Response

Governments responsibility Protect stakeholders Punish guilty Measures to prevent loss of confidence in the system Pledged the shares to lenders Hyped the number of employees Governance vacuum

Whether to sell or not?

These clients expected continuity of service, and failure to meet this expectation could effect the entire off-shoring model which had created so many jobs in India. If the old shareholders were to sell all their shares to the bidder and go away, they could simply choose the highest bidder. Since they continue to own their shares, crucial question is how well each of the competing bidders would manage the company after taking it.

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Regulatory reforms were needed to ensure that investors could have a modicum of faith in the audited accounts of Indias largest companies. A major fraud is an opportunity to push through important reforms which would otherwise be resisted by powerful vested interests.

Thoughts on auditor independence post-Satyam

The general definition of audit is an evaluation of a person, organization, system or enterprise. The person who undergoes this task is known as auditor. An auditors report is considered as essential tool when reporting financial information to users Capital markets rely on external auditors to provide assurance that firms financial reports are faithful representations of performance.

Contd.

The fundamental problem with the existing system of audits is that auditors are both engaged and paid by the same managers who may be responsible for misreporting. Auditor reputation is an important factor even in the absence of regulation. Auditor independence has proven to be a problem in many large audit failures.

Steps to increase auditor independence

Restrictions on auditor to provide non-audit services to the client. A strategy to increase audit independence that some countries have considered is mandatory rotation of audit firms. A method is proposed in recent year that mandatory audits be scrapped in favor of mandatory financial statement insurance. Method of joint audits.

What accountants need to do?

Multiple steps need to be taken, not just by regulators but by auditors and associations of accountants. National and global accounting firms, that are experts at internal control procedures, need to step up their own controls to minimize the chances that local partners are colluding with clients. In the same way, accounting associations like the ICAI, which have largely focused on developing auditing standards, need to come up with procedures to AUDIT THE AUDITORS.

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