satyam fiasco2

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  • 8/8/2019 Satyam Fiasco2


    CorporateGovernancePresented by:-

    1. Gaurav Jain 2. Jayesh mukhraya 3. Ashish patil 4. Tajender singh 5. Navneet 6. Tarunum naaz

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    Satyam Fiasco

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    Corporate Governance

    Corporate governance is characterized by a firm commitment andadoption of ethical practices by an organization across its entire value

    chain and in all of its dealings with a wide group of stakeholdersencompassing employees, customers, vendors, regulators andshareholders (including the minority shareholders), in both good and

    bad times. To achieve this, certain checks and practices need to bewhole-heartedly embraced.

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    Raju`s letter to board members

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    Satyam- Maytas

    Dec: 16

    Th e board of directors of Satyam Computer Services h as approved proposals to acquire 100%stake in Maytas Properties and 51% In Maytas Infra.

    Th e total outflow for bot h th e acquisitions is expected to be US$ 1.6 billion comprising of US$1.3 billion for t h e 100% stake In Maytas Properties and US$ 0.3 billion for t h e 51% stake inMaytas Infra.

    Maytas Infra , a 23-year old company, is engaged in t h e business of infrastructure constructionand asset development encompassing core areas of India's economic growt h viz., h igh ways,metro/railways, ports, transport management systems, airports, power, oil & gas, irrigation,water treatment, etc. Th e company's track record of delivering excellence h as created a nic h efor itself wit h innovative business models capturing a strategic and significant s h are of t h eaction in t h e infrastructure space.

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    W h y Mr. Raju want to Buy Maytas

    Raju wanted to acquire Maytas in order to cover up t h e scam h e was

    cooking, rajuh

    ad inflated th

    e figures of accounts andh

    ad put bogus salesand ot h er incomes to s h ow t h e h igh margin profits of company.

    Raju was trying to keep Satyam stock value h igh so t h at h e can pledge aswell as sell Satyam s s h ares for h igh er price & Invest t h e same money forcreating t h e assets.

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    Inflated figures

    Marginal gap between actual operating profit and the one reflected

    in the books continued to grow over the years. It had attained

    unmanageable proportions as the size of the companys operations

    grew over the years.Inflated cash & bank balances of Rs.5040 crore (As against

    Rs.5361 crore reflected in the books).

    An accrued interest of Rs.376 crore which is non-existent.

    Under stated liability of Rs.1230 crore on account of Funds arrangedby Mr. Raju.

    Over stated debtors position of Rs. 490 crore.

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    Inflated figuresIn Q2 of 2008 Satyam reported a revenue of Rs.2700 crore and a OperatingMargin of Rs. 649 Crore (24% of the revenues) as against the actualrevenues of Rs. 2112 crore and actual profit margin of Rs.61 crore (3% of revenues). This has resulted artificial cash and bank balance of Rs. 588crore in Q2 alone.

    The investigating agency during the probe found that the accused reliedheavily on technology to generate nearly 7,000 fake invoices to the tune of Rs 4,500 crore.

    The gap in balance sheet has arisen purely on account of inflated profitsover a period of last several years.

    Actual number of employees were only 40,000 and not 53,000 Mr. Rajuwas allegedly withdrawing INR 20 crores every month paying these non-existent employees.

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    Sr. No.

    ITMXMBA09 13

    Sr. No. Inflated Figures Effect in Balance Sheet

    1. Inflated (non-existent) Cash andbank balances of Rs. 5040Crore.

    The cash will be reduced byRs.5040 crore and the secondeffect would be reduction fromreserve.

    2. An accrued interest of Rs.376crore, which is non-existent.

    Accrued interest will be reducedby Rs. 376 crore and the second

    effect would be reduction fromreserve.

    3. An understated liability of Rs.1230 crore on account of thefunds arranged by Raju.

    The liability will increase and thesecond effect would bereduction from reserve.

    4. An overstated debtors positionof Rs.490 crore.

    Debtors will be reduced byRs.490 crores and the secondeffect would be reduction from


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    D irectors role in company

    The independent directors are expected to function on behalf of theshareholders and investors to protect their interests. Their duties fallunder two broad categories: the duty of loyalty to the shareholders

    and the duty of taking utmost care in approving any proposals of themanagement of a firm.Independent directors are appointed to company boards to ensurefair play in company affairs as they do not have vested interest inthe company.

    In satyam board It raises several doubts over the role of the Boardof Directors and the integrity of independent directors.

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    Spotlig h t on directors role in Satyam fraud

    The role of independent directors is now under close scrutiny.This has happened due to one of the less reported nexusbetween the Indian promoters, senior bureaucrats especiallythose from IAS, and senior bankers especially those fromlarge PSUs. Retired civil servants are used as glorified liaisonofficers.

    Independent directors of Satyam Computers, who agreed tothe company's proposal of buying out two promoter-relatedcompanies, failed to be independent in 'spirit',

    Independent directors need to be vigilant in protectingminority interest and be `brave' enough to take adequatesteps. "It is cumulative responsibility of the independentdirectors to protect the interest of shareholders and strategyof the organisation.

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    India did need a blow-out on a scale like Satyam to bring home the painful reality of the generally rotten state of corporate governance and the vicious promoter-politiciannexus endemic across different sectors of the economy.

    It would be naive to believe in the comments by select industry leaders and selectpoliticians that the Satyam case is one-off and that the entire Indian IT sector (or for that matter, the entire Indian business fraternity) cannot be tarred by the samepaintbrush.

    Satyam most certainly is not a only one-off high profile situation that India has beenforced to face. It is not the first one in the last 25 years, and will certainly not be thelast of the high profile ones in the next few years.

    To start with, we must accept that Satyam is our problem and we are expected to findthe solution ourselves.

    It may be easy to blame Price Waterhouse, that they did not perform their duties asauditors correctly. We must accept that there would be many very large audit firms,who may also be routinely turning a blind eye to the shenanigans of variouspromoters.

    We hope, that now, & perhaps finally, the regulatory systems and bodies responsiblefor ensuring compliance will start to function as they should have done before the

    Satyam blowout.

    Satyam Corporate non- Governance

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    More vigilant directorsAuditors rotationUse of investigative audit tec h niques & forensic audits

    Stricter norms for independent directorsAudit conduction in accordance wit h th e Auditing andAssurance Standards (AAS)Identifying and assessing t h e risk of materialmisstatement in financial statements & contactingmajor customers/suppliersBlack listing of Ch artered Accountants by I CAI forindulging in fraudulent accounting practices.

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    Thank you