AAER Instructions

PLEASE CREATE A PRESENTATION FOR THE BELOW INFORMATION

1. Introduction
2. The Securities and Exchange Commission vs. Satyam Computer Services (Respondent)

The Securities and Exchange Commission filed a settled civil action charging the company with fraudulently overstating the company’s revenue, income and cash balances by more than $1 billion over five years

Satyam Background

Satyam Computers Limited was India’s fourth largest software development and information technology consulting company

A private limited company incorporated by two brothers- B. Rama Raju and Ramalinga Raju in 1987, their success became synonymous with the success of the Indian IT industry for the next 20 years

Satyam was converted from a private limited company to a public company in August 1991, issuing share to the public in 1992

Satyam made its first global foray by entering into a joint venture with the U.S. company Dun and Bradstreet

To capitalize on the IT boom in the late 1990, Satyam made its first greenfield investment in the United States in 1998, opening a software development center in New jersey and subsequently opening several centers all over the world

Cause of the AAER

On December 23, the World Bank suspended Satyam for eight years for doing any business with itself, on the grounds that Satyam was offering bribes to World Bank staff for obtaining lucrative contracts

On January 7, 2009 B. Ramlinga Raju wrote a resignation letter to the Securities and Exchange Board of India admitting that he falsified the financial statement to the tune of INR71.36 billion, this falsified amount included INR50.46 billion in non-existing cash and bank balances

He confused he overstated profits, and the profit margin were as low as three per cent, and he also stated that the financial gap in actual and stated profits were known to senior officials

Investigation and Role of the Auditor

The amount of manipulated profits were more than INR96 billion

April 7, 2009 CBI discovered that Raji and his family had a total of 327 companies registered in their name

Pricewaterhousecoopers affiliates served as independent auditors of Satyam Computer Services when the report of scandal in the account books of Satyam Computer Services broke.

The Indian arm of PwC was fined $6 million by the SEC for not following the code of conduct and auditing standards in the performance of its duties related to the auditing of the accounts of Satyam Computer Services

Raji admitted that Satyam’s fixed deposits, which grew from 33.2 millions to 33.20 billion and they were all fake, the auditors were supposed to have an independent bank confirmation of such things in the form of a bank statemen

Prevention of the AAER

Risk Assessment- the auditor should have better understanding of the business industry and the computer software being used

Confirmation- auditors should have confirmed the bank transactions, stock prices, amd the property market

External Auditor Consultation- seeking outsourced contracts for an audit

Substantive Testing

Conclusion

On 9 April 2015, Raju and nine others were found guilty of collaborating to inflate the company’s revenue, falsifying accounts and income tax returns, and fabricating invoices, among other findings, and sentenced to seven years imprisonment by Hyderabad court. Kunjumani and his brother were also fined by the court 55 million rupees

References

https://en.wikipedia.org/wiki/Satyam_scandal#Histo…

https://www.sec.gov/litigation/litreleases/lr-2191…