Question

Summarize the events of a recent accounting scandal. Identify how the illegal or unethical act was detected and describe the punishments that resulted (fines, prison terms, etc.). Consider what could have been done to detect this act earlier or to prevent it from happening in the first place. Select a different example than those listed in previous posts.

Answer 1

Accounting scandals and frauds are perennial; they have occurred in all eras, in all countries and affected millions of corporations. Unfortunately, there are few loopholes in accounting and auditing standards, which provide leeway and thus motivate accounting professionals to use aggressively manipulation practices. In fact, accounting manipulation (AM) involves the intentional cooking-up of financial records towards a pre-determined target. Every company indeed maneuvers the numbers, to a certain extent, as formally reported in its financial statement (FS) to achieve budgetary targets and generously reward senior managers.. From Enron, World com to Satyam, it appeared that window-dressing leading to AM is a serious problem that is increasing both in its frequency and severity, which undermines the integrity of financial reported and eroded investors confidence. The responsiblity of preventing, detecting and investigating financial frauds rests squarely on Board of Directors and they should adopt preventive steps. Despite the raft of CG, and financial disclosure reforms, corporate accounting still remains murky and companies continue to find ways to play "hide-and-seek" game with the system. Satyam computers were once the crown jewel of Indian IT-industry but were bought to the ground by its founders in 2009 as a result of the financial manipulation in FS.

Undoubtedly, Satyam scam is illegal and unethical in which computers were cleverly used to manipulate account books by creating fake invoices, inflating revenues, falsifying the cash and bank balances, showing non-existing interest on fixed deposits, showing ghost employees, and so on. Satyam fraud has shattered the dreams of investors, shocked the government and regulators and led to questioning of the accounting practices of auditors and CG norms in India. Finally, we recommended that "All types of AM practices should be legally recognized as serious crime, and accounting bodies, law courts and regulatory authorities must adopt exemplary punitive measures to prevent such unethical practices."