Oh No, Another Accounting Scandal?

Oh no, here it is again, another massive accounting scandal and fraud, involving another top company. This time, is happening at the shores of one of the world's fastest growing emerging market, India. The latest fiasco involves India's fourth largest information technology company, Satyam (Computer Services), that is.

The chairman of India's fourth largest information technology companies admitted he concocted key financial results including a fictitious cash balance of more than $1 billion, a revelation that sent shock waves across corporate India and is likely to prompt investors to question the validity of corporate results as the once-hot economy slows.

B. Ramalinga Raju, is the founder and chairman of Satyam. In fact, the word "satyam" means truth in Sanskrit! Satyam has presence in over 66 countries and employs more than 53,000 global workforce. Together with the revelation, Raju has also tendered his resignation today. In his letter, he revealed overstating profits for the past several years, overstated the amount of debt owed to the company and understated its liabilities.


Raju said that Satyam had inflated its operating profit for the three months ended Sept. 30 to 6.49 billion rupees ($136 million) from 610 million rupees reported previously, while revenue was inflated to 27 billion rupees from 21.12 billion rupees. It had reported an operating margin of 24% which was actually 3%.

Raju also said Satyam's balance sheet as of Sept. 30 had a non-existent cash balance of 50.4 billion rupees; nonexistent accrued interest of 3.76 billion rupees; an understated liability of 12.3 billion rupees; and an overstated debtor position of 4.9 billion rupees compared with 26.51 billion rupees reflected in its books.

This has resulted in artificial cash and bank balances going up by 5.88 billion rupees in the second quarter alone.

Interesting to note that the auditor of Satyam Computer Services is no other than one of the big four Accounting Firm, PricewaterhouseCoopers (PwC). Questions point to whether PwC was involved in the accounting fraud. Remember the fate of Arthur Andersen with Enron?

Satyam's share price has plunged a staggering 78% in one day! On the other hand, India's Bombay Stock Exchange has plunged more than 7%.

For a copy of the content of the letter, please click here.