____________________________________________________________________________________<\/p>\n
INSTRUCTIONS:<\/p>\n
I. Please acknowledge the following statement:<\/p>\n
\u201cWe worked on this assignment on our own. Any outside sources have been properly cited. We did not copy from other students, from publicly posted test banks or other online sources\u201d<\/p>\n
III. Answer the questions below. <\/p>\n
IV. Indicate who from the team answered the respective question.<\/p>\n
V. Apply what you learned in class to answer the questions.<\/p>\n
VI. Feel Free to research the case if needed but please cite your sources and do not plagiarize.<\/p>\n
VII. Summarize your responses in a PowerPoint presentation for the class and submit it to the instructor by three days before your scheduled presentation date.<\/p>\n
VIII. Read the syllabus to see the date your case is due. will be presented, if you have conflicts please reach out ASAP to reschedule.<\/p>\n
IX. PRESENT YOUR POWERPOINT TO THE CLASS on your due date. Record your presentation of the PPT slides and upload to BB along with the PPT slides.<\/p>\n
X. You will also present the results to the class. Presentation should be about 5-10 minutes long in total, each team member must speak for 1-2 minutes. A good draft must be submitted to your professor 3 days in advance of your presentation.<\/p>\n
XI. The class will give each team that presents informal anonymous feedback & your professor will provide formal feedback.<\/p>\n
XII. Extra points will be given for dressing business casual. (Must be the whole team).<\/p>\n
Submitting a presentation\/written report that is copied, will result in a course grade of “F” for all team members.<\/p>\n
– Remember to submit your PowerPoint & Recorded Presentation on blackboard by the due date to get credit. Credit will not be given unless this is submitted on blackboard.<\/p>\n
– You MUST present your PowerPoint to get full credit. (Via a recording)<\/p>\n
– Only one member of the team needs to submit to blackboard. <\/p>\n
– Your group grade will be given to the student who submit on blackboard and he\/she will share with the team.<\/p>\n
I. Satyam Computer Services Ltd.\u2014India\u2019s Enron<\/p>\n
Imagine that you are on the board of directors of\u00a0Satyam Computer Services\u00a0and you receive a letter from the chairman of the board that starts, \u201cWith deep regret and tremendous burden that I am carrying on my conscience\u201d1\u00a0and goes on to say that the company\u2019s balance sheet includes: 1) cash of more than $1 billion; 2), $77 million (m) of accrued interest that is nonexistent; 3), $253m of understated liability arranged by the chairman; 4), overstated receivables of $101m; and 5) overstated income statement profits for each of the last several years. Next, imagine that you were the audit partner for Satyam! This is exactly what happened in January 2009 to both the board of directors and its auditor\u00a0Price Waterhouse India\u00a0(PWI).<\/p>\n
HISTORY OF SATYAM<\/p>\n
Satyam, which means \u201ctruth\u201d in Sanskrit, was founded by B. Ramalinga Raju in 1987 and grew to be a leading outsourcing firm used by major international companies. India\u2019s fourth-largest software and services firm, it reported revenue of $555m (actual revenue of $434m) and had 53,000 employees in 2008 (or did it? Stay tuned).<\/p>\n
Chairman of the board Raju\u2019s confession seemed to spring from the board of directors\u2019 denial of the purchase of Maytas (Satyam spelled backward), a Raju family-controlled company owning thousands of acres of property. Apparently, Raju planned to use Maytas assets to offset the fictitious assets at Satyam.<\/p>\n
The press had noted the company\u2019s related-party dealings. Raju\u2019s family members were on the Satyam board and friends were in senior management. Even though it was a large company, no financial experts were on the audit committee.<\/p>\n
INDIAN ACCOUNTING ENVIRONMENT<\/p>\n
Indian accounting standards are broadly similar to international standards, and the Indian accounting profession is largely self-regulated. Traditionally, general standards of corporate ethics and accounting have been suspect in India. Many companies had been created during License Raj, a period of government intervention in which businesses had to work with politicians and pay bribes. In India \u201cpromoters,\u201d2\u00a0who include business families and other corporate insiders, held almost half of the shares on the National Stock Exchange. However, because of its listing on the NYSE, Satyam was subject to the Sarbanes\u2013Oxley Act, which should have induced stricter governance.<\/p>\n
Although the Big Four accounting firms have been eagerly touting the growth potential in India, development there has been hampered by heavy national restrictions on the size and number of audit clients a partner can serve. The relationship between PwC and PWI underlines what many see as the patchwork nature of the big accounting firms. Each is a collection of national partnerships under a global umbrella organization. The profession has tried to standardize practices and ethics across the firms, but senior partners privately admit that quality can still be patchy. Some say the Big Four firms in India rely on trainee chartered accountants, and sometimes accountants simply copy the previous years\u2019 audits and the internal auditors\u2019 work because they have limited time to complete the current audit.<\/p>\n
THE FRAUD<\/p>\n
This fraud, which is India\u2019s biggest corporate fraud, apparently started in April 2002 when IT companies\u2019 American depository receipts (ADRs)3\u00a0were popular among foreign investors. At that time,\u00a0Raju decided to maintain two subaccounts under a single company bank account. He and his cronies controlled the main bank account, and the statements of the subsidiary account were under the control of the company\u2019s finance and account reconciliation (FAR) team. The accounting team would receive two bank statements for the same account: a genuine set of statements from the bank and a second set of fictitious statements provided by Raju and his team. The FAR team had to accept the fictitious bank statements (and related interest accruals). Allegedly, even the auditors relied on the documents supplied by Raju instead of obtaining third-party verification. The CFO, Srinivas Vadlamani, who was arrested, said he had not been directly involved but knew there had been something suspicious for more than five years. He had been specifically asked not to look at deposits. Vadlamani said the plan was carried out by creating a paper trail of fabricated invoices, forged balance sheets, and counterfeit bank statements in a scheme involving about 10 junior staff accountants.<\/p>\n
Initial investigations have revealed that an in-house Satyam team developed software to generate altered invoices that included the genuine name of a client and of the client\u2019s project manager but with an overstated invoice amount. For example, a Satyam client, XYZ, pays 100 rupees to Satyam\u2019s bank account as fees. The original bank statement showed 100 rupees deposited by XYZ, but the statement provided by Raju overstated this figure. Year after year, altered invoices in the name of genuine clients and employees were created and went unnoticed by auditors.<\/p>\n
The unrecorded liability of $253m was the amount that private companies owned by Raju lent to Satyam. To keep analysts and investors at bay, the loan amount was not shown in the books. Had it been shown, it would have raised eyebrows. After all, why would a company incur this liability when it had so much cash on its books?<\/p>\n
In addition, the public prosecutor noted that the CFO (Vadlamani) had admitted during interrogation that Satyam had just 40,000 employees versus the 53,000 officially claimed, and the fictitious wages were siphoned off. The prosecutor claims Raju used a fictitious name to divert $4m a month from the company\u2019s account for his personal wealth. India\u2019s Serious Fraud Investigation Office has found that $100m raised through the issuance of ADRs did not end up in the company\u2019s bank accounts and has still not been found.<\/p>\n
Although the company\u2019s bank balance was fictitious, the employees had to be paid real salaries. To meet these expenses, Raju and his family started pledging their stake in the company. The shares were pledged by a holding company, SRSR Holdings, which in turn had approximately 300 subsidiaries. India\u2019s Central Bureau of Investigation (CBI) has found that some of the documents of the companies created by Raju contained land records and names of land mafia agents,4indicating that the case may be more than just an accounting fraud.<\/p>\n
THE AUDITORS<\/p>\n
Even though PWI had been Satyam\u2019s auditor since 2000, it resigned. Indian police have arrested two partners of PWI on charges of criminal conspiracy and cheating. PwC says, \u201cThe audits were conducted by PWI in accordance with applicable auditing standards.\u201d5\u00a0Vadlamani, the former CFO, said the auditors had not been complicit in cooking the books and had been given forged documents. The auditors had relied on documents provided by management such as account balance statements and letters of confirmation of account balances.<\/p>\n
More specifically, Dennis Nally, then global leader of PwC, said to\u00a0Business Today:<\/p>\n
If our job was described as to provide a 100 per cent assurance that there have been no material mistakes and no frauds have been committed, that would require audit firms to significantly increase the amount of work we do today and have much more forensic and different types of auditing. As we all know, when there is a desire at the top of an organization to commit a massive fraud, individuals in the organization that have participated in the fraud can do a lot of different things to keep it away from individuals, including auditor firms, the Board of Directors and the analyst community.6<\/p>\n
FOLLOW-UP<\/p>\n
Indian authorities arrested Raju and his brother Rama on complaints of cheating, forgery, breach of trust, and other charges. Police called in cyberforensic experts who can retrieve erased data from computers. In all, 10 people have been arrested.<\/p>\n
PWI suspended its chief relationship partner and engagement leader on the Satyam audit, set up an advisory board, conducted a review of work and processes, and appointed a new head of quality assurance and risk management. While screening through the minutes of some of the board meetings, investigators found that the total audit fees paid to PWI for its domestic and international accounts was around $1.4m, almost double the figure mentioned in the balance sheet.<\/p>\n
The information concerning the probe initiated by the Crime Investigation Department (CID), the Serious Fraud Investigation Office (SFIO), and Institute of Chartered Accountants of India (ICAI) was handed to the CBI. After some initial work, the CBI confirmed to\u00a0Business Today\u00a0that Raju seems to have come clean in his confession letter except for his statement about not having benefited in financial terms as a result of inflated results. \u201cWe are yet to establish if there was any diversion of funds from Satyam to any of Raju\u2019s entities. This will take some time to investigate,\u201d added the CBI official.7\u00a0Decoding the biometric laptops used by Raju and his team, screening the internal financial software of the company and minutes of the board meetings for the final six years, scanning papers of the approximately 300 companies created by Raju and his family, and scrutinizing the land records under these companies was expected to keep the CBI busy for months.<\/p>\n
In fact, during an interrogation session, Raju is believed to have said that he never did anything wrong because everyone else in the industry does it.<\/p>\n
On April 5, 2011, the PCAOB and the SEC announced a joint penalty of $7.5m against the five firms composing PW India, a member of PwC. At the time, it was the largest such penalty ever assessed against a registered foreign accounting firm. The firms were also given other sanctions, including a six-month ban on accepting new SEC clients and the imposition of quality controls. In addition, the Institute of Chartered Accountants of India (ICAI) has barred two Indian auditors, Pulavarthi Siva Prasad and Chintapatla Ravindernath, from \u201cthe register of members permanently\u201d for their role in the crisis.8<\/p>\n
In the release of its findings, the PCAOB said the auditors had relied on management to send confirmation requests to Satyam\u2019s bank and to return responses to the auditors even though the audit programs \u201cexplicitly acknowledged that the engagement team should maintain control of the process of sending confirmation requests and receiving confirmation responses relating to the confirmation of cash.\u201d9\u00a0Moreover, a network firm partner reviewing the documentation \u201cadvised that the engagement team \u2018can only take credit for [cash] confirmations we send [to] and receive directly [from the banks].\u2019\u201d10\u00a0The partner \u201cnoted that the Company had a significant balance of fixed deposits and advised the engagement team to \u2018document that confirmations have been received [from the banks] for such amounts.\u2019\u201d There had been similar shortcomings in the confirmation of accounts receivable, even though the firm had noted numerous internal control deficiencies. \u201cThese confirmation deficiencies contributed directly to the auditors\u2019 failure to uncover the Satyam fraud,\u201d said James R. Doty, PCAOB Chairman.11<\/p>\n
II. DISCUSSION QUESTIONS (Put the answers in a PowerPoint Presentation and prepare to present to the class.) (See Additional Resources on the next page for references as needed.)<\/p>\n
Provide us a very high-level summary of the Issues in the Case Study (Think who, what, where, and when.) (Keep it brief).<\/p>\n
How do you think Raju could have used Maytas assets to cover up the fraud?<\/p>\n
Why are related-party frauds more difficult to detect than frauds with no related parties?<\/p>\n
Should U.S. public accounting firms try to audit internationally in cultures they may not understand? If so, how can they maintain quality audits?<\/p>\n
Can an international firm have one set of absolute ethics standards that must be followed at all times, or do ethics standards need to be flexible enough to account for variations in cultures?<\/p>\n
How can auditors ensure they are receiving authentic documentation, not forgeries?<\/p>\n
In your opinion, should PWI be subject to civil litigation?<\/p>\n
Do you believe modifying sampling approach or performing analytical procedures by the auditor could have caught the problem? If so what changes to sampling or which analytical procedures should have been performed?<\/p>\n
Which component of COSO was deficient based on the following excerpt \u201cRaju\u2019s family members were on the Satyam board and friends were in senior management. Even though it was a large company, no financial experts were on the audit committee.\u201d<\/p>\n
What suggestions do you have for audit firms to address the following concern raised by the Case \u201cSome say the Big Four firms in India rely on trainee chartered accountants, and sometimes accountants simply copy the previous years\u2019 audits and the internal auditors\u2019 work because they have limited time to complete the current audit?\u201d<\/p>\n
What could the auditor have changed to address the following concerns: \u201cIn the release of its findings, the PCAOB said the auditors had relied on management to send confirmation requests to Satyam\u2019s bank and to return responses to the auditors even though the audit programs \u201cexplicitly acknowledged that the engagement team should maintain control of the process of sending confirmation requests and receiving confirmation responses relating to the confirmation of cash.\u201d9\u00a0Moreover, a network firm partner reviewing the documentation \u201cadvised that the engagement team \u2018can only take credit for [cash] confirmations we send [to] and receive directly [from the banks].\u2019\u201d10\u00a0The partner \u201cnoted that the Company had a significant balance of fixed deposits and advised the engagement team to \u2018document that confirmations have been received [from the banks] for such amounts.\u2019\u201d There had been similar shortcomings in the confirmation of accounts receivable, even though the firm had noted numerous internal control deficiencies. \u201cThese confirmation deficiencies contributed directly to the auditors\u2019 failure to uncover the Satyam fraud,\u201d said James R. Doty, PCAOB Chairman.11\u201d ?<\/p>\n
Do you believe the following penalty was sufficient \u201cOn April 5, 2011, the PCAOB and the SEC announced a joint penalty of $7.5m against the five firms composing PW India, a member of PwC. At the time, it was the largest such penalty ever assessed against a registered foreign accounting firm. The firms were also given other sanctions, including a six-month ban on accepting new SEC clients and the imposition of quality controls. In addition, the Institute of Chartered Accountants of India (ICAI) has barred two Indian auditors, Pulavarthi Siva Prasad and Chintapatla Ravindernath, from \u201cthe register of members permanently\u201d for their role in the crisis.\u201d?<\/p>\n
What are your thoughts on the following statement regarding the auditors responsibility to detect fraud- do you agree\/disagree explain why \u201cDennis Nally, then global leader of PwC, said to Business Today: If our job was described as to provide a 100 per cent assurance that there have been no material mistakes and no frauds have been committed, that would require audit firms to significantly increase the amount of work we do today and have much more forensic and different types of auditing. As we all know, when there is a desire at the top of an organization to commit a massive fraud, individuals in the organization that have participated in the fraud can do a lot of different things to keep it away from individuals, including auditor firms, the Board of Directors and the analyst community.\u201d<\/p>\n
What are your thoughts on the arrest of two partners \u2013 based on what the CFO said? Is the arrest fair? \u201cEven though PWI had been Satyam\u2019s auditor since 2000, it resigned. Indian police have arrested two partners of PWI on charges of criminal conspiracy and cheating. PwC says, \u201cThe audits were conducted by PWI in accordance with applicable auditing standards.\u201d5 Vadlamani, the former CFO, said the auditors had not been complicit in cooking the books and had been given forged documents. The auditors had relied on documents provided by management such as account balance statements and letters of confirmation of account balances.\u201d<\/p>\n
Which PCAOB audit standard would an auditor refer to in order to determine their responsibility with respect to Related Party Transactions? (See page https:\/\/pcaobus.org\/Standards\/Auditing\/Pages\/default.aspx )<\/p>\n
ADDITIONAL SOURCES<\/p>\n
Anand Adhikari, \u201cThe Problem Within: When the Bulk of the Auditing Work Involves Junior Auditors, Trouble Can\u2019t Be Too Far Behind,\u201d\u00a0Business Today, February 22, 2009.<\/p>\n
Geeta Anand and Romit Guha, \u201cCorporate News: Satyam Bank Documents at Issue\u2014Fraud Probe Sheds Light on How Outsourcing Company Inflated Its Balance Sheet,\u201d\u00a0The Wall Street Journal, January 20, 2009, p. B3.<\/p>\n
Eric Bellman and John Satish Kumar, \u201cFounder Arrested, Board Out at Satyam,\u201d\u00a0The Wall Street Journal, January 10, 2009, p. B1.<\/p>\n
Eric Bellman and Jackie Range, \u201cCorporate News: Satyam Probe Scrutinizes CFO, Audit Committee,\u201d\u00a0The Wall Street Journal, January 14, 2009, p. B3.<\/p>\n
\u201cCorporate News: Satyam Backs Removal of Auditors,\u201d\u00a0The Wall Street Journal, February 23, 2009, p. B3.<\/p>\n
Jennifer Hughes, \u201cAccountants Go into Shock at \u2018India\u2019s Enron,\u2019\u201d\u00a0Financial Times, January 9, 2009, p. 16.<\/p>\n
Nandini Lakshman, \u201cNine Charged in Hyderabad in Satyam Fraud,\u201d\u00a0BusinessWeek, April 7, 2009.<\/p>\n
Joe Leahy, \u201cDetails of Alleged Satyam Fraud Emerge,\u201d\u00a0www.ft.com, January 22, 2009.<\/p>\n
Kenan Machado and Romit Guha, \u201cSatyam Founder Raju Is Granted Bail,\u201d\u00a0The Wall Street Journal, August 19, 2010, p. B8.<\/p>\n
Nandini Lakshman, and Manjeet Kripalani, \u201cIs the Worst Over for Satyam?\u201d\u00a0BusinessWeek, February 4, 2009.<\/p>\n
\u201cOffshore Inmates: The Satyam Scandal,\u201d\u00a0The Economist, January 17, 2009, p. 64.<\/p>\n
PCAOB, Release No. 105-2011-002, April 5, 2011.<\/p>\n
\u201cPricewaterhouseCoopers Speaks to Puja Mehra on Improving Audit Practices,\u201d\u00a0Business Today, July 2009.<\/p>\n
Jackie Range and Joann S. Lublin, \u201cThe Satyam Scandal: Spotlight on India\u2019s Corporate Governance,\u201d\u00a0The Wall Street Journal, January 8, 2009, p. A9.<\/p>\n
Jackie Range, \u201cCorporate News: Additional $100 Million Said to Be Missing from Satyam,\u201d\u00a0The Wall Street Journal, May 1, 2009, p. B2.<\/p>\n
Jackie Range and R. Jai Krishna, \u201cCorporate News: More Staff Arrested at Satyam\u2014Former Finance Chief at Indian Software Firm Defends Outside Auditors,\u201d\u00a0The Wall Street Journal, April 7, 2009, p. B2.<\/p>\n
Jackie Range, \u201cCorporate News: Accountants for Satyam Arrested by Indian Police,\u201d\u00a0The Wall Street Journal, January 26, 2009, p. B3.<\/p>\n
Ahmed Rumman, \u201cSatyam Auditor Seeks to Repair Image,\u201d\u00a0The Wall Street Journal, March 6, 2009, p. B5.<\/p>\n
Joshi Sonal, \u201cIndia after Busting Land Mafia Organized Crime Involving Former Government Officials and Apartment Developers,\u201d\u00a0www.indiadaily.com\/editorial\/3897.asp, August 1, 2005.<\/p>\n
Salil Tripathi, \u201cIndia Faces an \u2018Enron Moment,\u2019\u201d\u00a0The Wall Street Journal, January 9, 2009, p. A11.<\/p>\n
Craig Whitcher, Tyler Caskill, Andrew Reece, and Jake Denoncourt, \u201cSatyam Case,\u201d Working Paper, George Mason University, 2009.<\/p>\n","protected":false},"excerpt":{"rendered":"
____________________________________________________________________________________ INSTRUCTIONS: I. Please acknowledge the following statement: \u201cWe worked on this assignment on our own. Any outside sources have been properly cited. We did not copy from other students, from publicly posted test banks or other online sources\u201d III. Answer the questions below. IV. Indicate who from the team answered the respective question. V. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[10],"class_list":["post-78670","post","type-post","status-publish","format-standard","hentry","category-research-paper-writing","tag-writing"],"_links":{"self":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/78670","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/comments?post=78670"}],"version-history":[{"count":0,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/78670\/revisions"}],"wp:attachment":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/media?parent=78670"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/categories?post=78670"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/tags?post=78670"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}