Satyam Board's Fraud Case Summary

Satyam Board’s was mainly comprised of ‘friendly’ directors who were not in the position to question the decisions adopted by the managers. Not only they were pro-management, but they were also incapable of acting when it was quite obvious that the company was facing some severe financial distress. Out of the nine board directors six were ‘independent’ directors. These independent directors clearly did not act on the interest of shareholders and other stakeholders, even when it was obvious that there were fraudulent acts within the company.

Satyam’s scandal has pointed out the larger regulatory failure, which is closely related to audits. The role of the audit committee is to verify and certify the transparency of the disclosed financial information

External auditors, hired by the auditing committee, are responsible for assuring that accounting statements are thorough and objective, and in Satyam’s case, PwC did not fulfill its role as external and objective auditor. Evidence may lead to believe that PwC was aware of the fraud but refused to disclose it under increasing auditing fees provided by Satyam. PwC’s fault lies mainly in failing to verify cash and bank balances. According to a statement released by PwC, its auditors simply relied on the books prepared by the company and did not further investigate the data presented to them. The auditors did not verify the existence of the fictitious fixed deposits and certified the good standing of Satyam. Not only PwC, failed to do its job of providing accurate information to the shareholders, but also played an important role in perpetrating the fraud by certifying a spotless audit report for fraudulent and manipulated books. Another important aspect was the audit fee paid by Satyam to PwC. In fact, between 2003 and 2008, the fee was raised three times, reaching almost double the average pay of comparable firms in the same industry (TCS, Infosys, and Wipro). This evidence is an indication that PwC was bought to comply with the fraudulent practices adopted within Satyam, and ensured that the