Page 102 - DCAP307_PLANNING_AND_MANAGING_IT_INFRASTRUCTURE

Planning and Managing IT Infrastructure

Notes to quickly establish how this happened and who caused it to happen.” (Rajeev
Chandrasekhar, Member of Parliament and President of the Federation of Indian Chambers
of Commerce and Industry) As the scandal unfolded, Merrill Lynch (Now with the Bank of
America) terminated its engagement with the company. The New York Stock Exchange
immediately suspended trading in Satyam shares. Consequently analysts have speculated
about the possible negative impact of this scandal on foreign investors’ willingness to
invest in emerging markets like India. “This news is got to shake investors’ confidence.
And it is compounded in my mind by what I already call the fear complex that exists
around all global markets, I don’t know if it will be long, long-term. But you let another
shoe or two drop and I would say it would be way worse.”

The Securities and Exchange Board of India, the markets regulator in India, has already
ordered an investigation into Satyam’s fiasco. The Institute of Chartered Accountants of
India intends to seek an immediate explanation from Satyam Computer’s auditors Price
Water House Cooper on the financial fraud revealed before taking any action. Even though
the exact nature and causes of Satyam’s downfall will only be known once investigations
are completed, it appears that ineffective corporate governance and oversight caused
Satyam’s downfall. “India’s corporate governance standards have been put at stake here,
the role of the auditors has also come under serious question.” (Hitesh Agarwal, Head of
Research, Angel Broking).
Many analysts while attributing Satyam’s downfall to failure of corporate governance
have emphasised on making family owned businesses founders aware of the risks inherent
in non adoption of corporate governance frameworks in their true spirit emanating from
the reluctance of the owners to introduce transparency and professionalism in their
businesses. Even though Satyam Computers had independent directors on their board of
directors, their inability apparently due to lack of expertise or knowledge of accounting
frauds raises the question of the role and responsibilities as well as qualifications, skills
and expertise of independent non-executive directors. ACCA research indicates that failure
in corporate governance is a major contributor to the credit crunch and consequently the
current financial turmoil. Collapses like Satyam demonstrate that regulatory boxes may
have been ticked but fundamental principles of corporate governance have been breached.
The charitable explanation for corporate collapses like Satyam is that those responsible
did not understand the risks that were being taken thus suggesting a failure of diligence
and professionalism. A less charitable explanation is that those responsible knew about
the risks but chose to turn a blind eye.
Satyam downfall once again brings into focus the issue of moral and ethical failure. How
could the owner and chairman of the company inflate accounting profits without the
knowledge of the entire board or any one else in the company? Why did board of directors
not question the financial statements? Greater emphasis on professionalism and ethics in
business is the need of the hour. That is why ethics and professionalism figure so
prominently in ACCA professional accountancy qualification, alongside the need for
strong technical financial and accounting skills, and why the demand for people with
ACCA international qualification is growing across the world.
It is with deep regret, and tremendous burden that I am carrying on my conscience, that I
would like to bring the following facts to your notice:

The Balance Sheet carries as of September 30, 2008:
Inflated (non-existent) cash and bank balances of 50.40 billion rupees ($1.04 billion)
(as against 53.61 billion reflected in the books).

Contd....

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