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    Two Audit Failure: Presented by Mohi Uddin M.A.M Shahriar

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    The document summarizes two major accounting scandals: 1) The Satyam scandal where the chairman inflated cash balances and understated liabilities by over $1 billion. 2) The Worldcom scandal where the CEO and CFO misallocated over $9 billion in operating expenses as capital expenditures hiding losses and inflating profits. Both scandals involved fraud, deception of auditors, and resulted in massive losses for shareholders.

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    Two Audit Failure: Presented by Mohi Uddin M.A.M Shahriar

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    MahiUddin
    28 views19 pages
    The document summarizes two major accounting scandals: 1) The Satyam scandal where the chairman inflated cash balances and understated liabilities by over $1 billion. 2) The Worldcom scandal where the CEO and CFO misallocated over $9 billion in operating expenses as capital expenditures hiding losses and inflating profits. Both scandals involved fraud, deception of auditors, and resulted in massive losses for shareholders.

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    Auditing Final Presentation

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    Auditing Final Presentation (1)

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    The document summarizes two major accounting scandals: 1) The Satyam scandal where the chairman inflated cash balances and understated liabilities by over $1 billion. 2) The Worldcom scandal where the CEO and CFO misallocated over $9 billion in operating expenses as capital expenditures hiding losses and inflating profits. Both scandals involved fraud, deception of auditors, and resulted in massive losses for shareholders.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    28 views19 pages

    Two Audit Failure: Presented by Mohi Uddin M.A.M Shahriar

    Uploaded by

    MahiUddin
    The document summarizes two major accounting scandals: 1) The Satyam scandal where the chairman inflated cash balances and understated liabilities by over $1 billion. 2) The Worldcom scandal where the CEO and CFO misallocated over $9 billion in operating expenses as capital expenditures hiding losses and inflating profits. Both scandals involved fraud, deception of auditors, and resulted in massive losses for shareholders.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 19

    Two Audit Failure

    Satyam scandal
    WorldCom Scandal

    Presented by
    Mohi Uddin
    M.A.M Shahriar
    INTRODUCTION
    Satyam Computers was founded in 1987.
     It converted into Public Ltd Co. in 1992.
    The company offers consulting and information
    technology services spanning various sectors.
    Mahindra Satyam is overall ranked #153 by Fortune India
    500 in 2011.
    Satyam's network covers 66 countries and 53000 employees
    across six continents. It is listed in BSE, NSE, NYSE
    The Rise of Satyam
     1987 : Satyam Computers Pvt. Ltd. Born.

     1991 : June - First Fortune 500 Client.


    August - Converted into Public Ltd. Co.

     1994 : The Big Break- Allies with Dun and Bradstreet Corp.

     2000 : Declared one of the 100 most pioneering technology


    companies by World Economic Forum.

     2002 Dataquest IT Man of the year award.


    People Behind This Scam

    Ramalinga Raju : Satyam former chairman

    B Rama Raju : Brother of Ramalinga Raju


    Former Managing Director

    V Srinivas : Ex-Chief financial officer

    S Gopalakrishnan: Price Waterhouse Auditor

    Talluri Srinivas : Price Waterhouse Auditor


    HOW DID IT HAPPENED?

    FLOATED TWO OTHER COMPANIES FOR THEIR OWN PURPOSE .


    WITHOUT TAKING PERMISSION OF THE SHAREHOLDERS.
    FAILED TO REPAY THE LOANS.
    TRANSFER OF MONEY.
    UNDERSTANDING THE SCAM!

    THE BALANCE SHEET AS OF SEPTEMBER 30, 2008 SHOWED-


    INFLATED (NON-EXISTENT) CASH AND BANK BALANCES OF RS. 5040 CRORE (AS
    AGAINST RS. 5312 CORE REFLECTED IN THE BOOKS)

    AN ACCRUED INTEREST OF RS. 376 CRORE WHICH IS NON-EXISTENT

    AN UNDERSTATED LIABILITY OF RS.1230 CRORE ON ACCOUNT OF FUNDS


    ARRANGED BY BR RAJU.
    CONFESSION
    JANUARY 7TH, 2009
    “ IT WAS LIKE RIDING A TIGER
    , NOT KNOWING HOW TO GET
    OFF WITHOUT BEING EATEN “
    PROBABLE REASONS

    PRESSURE TO MEET Growing Competition


    EXPECTATION Threat of being overtaken

    OVERCONFIDENCE On his ability

    Siphoning of funds
    PERSONAL BENEFITS Salary of non-existent 13000
    employees
    Conclusion

    More scandals like Satyam can be avoided if-

    1.If auditing firm is honest.


    2.SEBI plays an active role.
    3. Periodic review of legal compliance reports
    by independent directors.
    Overview
    WorldCom Inc. began as a small Mississippi provider of long
    distance telephone service called LDDS.

    1993: 1988-1994 : Second largest 2000: 2002:


    Acquired more telecommunication
    4th largest with Dotcom Accounting
    than half-dozen provider in the US
    $1.5 billion communication after AT&T in 1998 Bubble Burst Fraud
    revenue companies and 2002. uncovered
    Fall of WorldCom
    2000 2002

    • WorldCom and • Revenues fall short • Market value of the


    other of expectations, company’s common
    telecommunications while debt remains. stock plunged from
    firms have faced about $150 billion in
    reduced demand as • Profit down January 2000 to
    the dot–com boom less than $150
    ended and the million as of July 1,
    economy entered 2002.
    recession.
    Fraud
    was accomplished in two main ways:

    WorldCom's accounting department


    underreported 'line costs’

    by capitalizing operating expenses


    What WorldCom did?
    Reduced the amount of money held in reserve by $2.8 billion and moved this money
    into the revenue line of its financial statements.

    In 2000, classified operating expenses as long-term capital


    investments ( $3.85 billion).

    These changes turned WorldCom's losses into profits to the


    tune of $1.38 billion in 2001. It also made WorldCom's assets
    appear more valuable.
    Cont’d
    They also added a journal entry for $500 million in
    computer expenses, but supporting documents for the
    expenses were never found.

    Ebber also takes out a separate $43 million loan to


    finance the purchase of a 500,000-acre ranch- backed
    by Ebbers' WorldCom stock.

    Scott Sullivan misallocated capital expenditure as


    normal expenses, thus turning profits into losses ( $9
    billion) - not discovered by internal auditor Cynthia
    Cooper until June 2002.
    How it discovered

    First, by WorldCom's own internal auditor, Cynthia


    Cooper - uncovered $3.8 b. of the fraud.

    Then Securities and Exchange Commission


    (SEC) launched an investigation.
    External Auditors
    The external auditor, Arthur Andersen, was the one
    responsible for providing an independent opinion of the
    financial situation at WorldCom for investors and
    creditors. The auditing firm also failed to carry out its
    duties properly.

    Arthur Andersen’s failed to detect the fraud was due in part to


    negligence and in part to the tight control top management
    kept over information.

    Andersen failed to bring this problem to the attention of the


    Audit Committee
    Impact of the Fraud
    Shareholders: $180B of shareholder value lost (based on peak stock price)

    Debt & Preferred Stock holders: $37.5B of debt and preferred stock holder value lost

    Company: $750M settlement paid to SEC

    Employees: 57,000 employees lost jobs

    Board of Directors: 12 Directors agreed to pay (out of pocket) a total of $25M to settle

    securities class action case

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