1.1 What Is FraudAccordingto the Association of Certified Fraud Examiners (ACFE), fraud is “a deceptionor misrepresentation that an individual or entity makes knowing thatmisrepresentation could result in some unauthorized benefit to the individualor to the entity or some other party” 1. In fraud, groups of unconscionableindividuals manipulate, or affect the activities of a specific business withthe purpose of earning money.

Fraud cheats the financial position of theorganization and results in a loss of goods, money, and even goodwill andreputation. It is essential that organizations establish procedures andcontrols that prohibit employees from committing fraud and detect fraudulentacts whenever it occurs. The fraudulent activities on the leadership level is knownas “managerial fraud” and the one belongs to entity’s employees is known as”fraud by employees’ association”.1.2 Magnitute of Fraud LossesOver the past years, major companies haveencountered financial reporting fraud, resulting in trouble in the capitalmarkets, a loss of shareholder value, and, the bankruptcy of the companyitself. Although, the Sarbanes-Oxley Act has enhanced corporate governance and loweredthe incidence of fraud, recent studies reference that investors and management stillhave concerns about financial statement fraud.

For example:·        The ACFE’s “2010 Report to theNations on Occupational Fraud and Abuse” 1 found that financial statementfraud, which represent less than five percent of the cases of fraud in its report,was by the most costly, with a median loss of $1.7 million per incident. Surveyestimated that the typical organization loses 5% of its revenues by fraud eachyear.

Gross World Product, estimated potential projected annual fraud loss ofmore than $3.5 trillion per year. ·        According to “Annual Fraud Indicator2012” made by the National Fraud Authority (UK) 5, “The scale of fraud lossesin 2012, against all victims in the UK, is in the region of £73 billion perannum. Moreover, Fraud was a major contributing factor to therecent financial crisis and it affected negatively on the efficiency, liquidityand safety of both debt and capital markets 6, increased uncertainty andvolatility in financial markets. It also decreases the creditability offinancial information that investors use in investment decisions. When takinginto consideration the loss of investor confidence, as well as, potential finesand criminal actions, it is obvious why financial misstatements should be everymanager’s worst fraud nightmare 7.  1.

3 WHo Commits Fraud Generally, thereare three groups of people who commit financial statement frauds. They rangefrom senior management (CEO and CFO); mid- and lower-level management 9. CEOsand CFOs commit accounting frauds to hide true business performance, to maintainpersonal status and personal income and wealth.

Mid- and lower-level employees manipulatefinancial statements under their responsibility (subsidiary, division or otherunit) to hide poor performance and/or to earn performance-based bonuses.Organizational criminals manipulate financial statements to get loans, or to overstatea stock they plan to sell in a “pump-and-dump” scheme. While many changes infinancial audit procedures have emerged from financial fraud, or manipulations,and related research repeatedly proved that a financial audit cannot be reliedupon to detect fraud at any significant level.             1.4                      Consequensesof Fraudulent ReportingFraudulent financial reporting affectsorganizations in many areas: financial, operational and psychological 10.

While the financial loss is important, the full effect of fraud on anorganization can be stunning. The losses to reputation, goodwill, and customerrelations can be destructive. Those impacted may range from the “direct”victims (the company’s stockholders and creditors) to the more “indirect”(those harmed when investor confidence in the stock market is shaken). Betweenthese two extremes, many others may be affected: “employees” who may lose jobsor their diminished pension fund value; “depositors” in financial institutions;the company’s “underwriters, auditors, attorneys, and insurers”; and evenhonest “competitors” whose reputations suffer by association. As fraud can be committedby any staff within any company or by those from the outside, therefore, it isimportant to have an effective “fraud management” program in place to protect yourorganization’s assets and reputation.

Thus, earlier detection of fraudulentfinancial reporting must start with the entity that prepares financial reports.Given the current state of the economy, fraud is still a major concern forcorporate executives. In fact, the recent regulations of Sarbanes-Oxley,designed to help avoid and detect corporate fraud, have exposed fraudulentpractices that previously may have gone undetected. 2.    Review ofLiteratureStarting in the late 1990s, awave of corporate frauds in the United States existed with Enron’s failureperhaps being the nominal example. Themajority of studies were performed in developed, Western countries.

However,the manager’s behavior in fraud commitment has been relatively unexplored sofar. Accordingly, the objective of this study is to inspect managers’ unethicalbehaviors in Satyam Computer Limited. Unfortunately, no study has been done to inspectbehavioral aspects of manager’s in the perpetuation of corporate frauds in thedeveloping economy, like India. Hence, the present letter seeks to fill thisgap and contributes to the literature.3.    research focus3.

1         ResearchproblemFinancialreporting procedure can be developed by reference to a particular setting inwhich it is embedded. Therefore, “qualitative” research is useful to describefraudulent financial reporting act. Here, two issues are critical. First, theneed for an “interpretive” research approach on fraudulent financial reporting.Second, case study developed as part of this study, looked specifically at thelargest “India’s Enron” by inspecting the accounting system applied at SatyamCompany, and how the Indian regularities failed to avoid and prevent fraud.

3.2         ResearchquestionH1: How can weavoid corporate fraud through Satyam case study? 3.3         ResearchaimThe mainobjectives of this study are to:1-     Highlight the Satyam Computers Limited’s accounting outrage by describingthe sequence of events, the aftermath of events, the key parties involved, andmajor follow-up actions undertaken in India.2-     Lesions can be learned from Satyam scandal?4.

    research methodologyWeinspected documented behaviours in cases of Satyam corporate, using theevidence published on press articles, and also do a “content” analysis to them.Regarding information collection “methodology”, we obtained evidence from thepress coverage contained in the “Factiva” database. This study is primarilybased on “secondary” sources of data (EBSCO host database) collected from therelated journals, newspaper, books, statements, reports. As stated earlier, thenature of study is “primarily qualitative, descriptive and analytical”. 5.    CorporateAccounting Scandal at Satyam Computer services Limited: A Case study of india’senron.5.

1 IntroductionFrom being India’s IT “crownjewel” and the country’s “fourth largest” company the company has become involvedin the nation’s biggest corporate fraud in living memory 25. The company’sChairman and founder has been arrested and has admitted to a $1.47 billion fraudfor several years from company profits. According to reports, The Chairman andhis brother, who was the General Manager, “conceal the deception from thecompany’s board, senior managers, and auditors”. In order to understand the riskinessof Satyam’s fraud, it is important to understand factors that participated tothe “unethical” decisions made by the company’s executives.

First, it is importantto understand the rise of Satyam as a competitor within the global IT servicesmarketplace. Second, it is helpful to assess the driving-forces behind Satyam’sdecisions: The Chairman. Finally, try to learn some “lessons” from Satyam fraudfor the future.5.

2 The Emergence of the Company. The company was established in1987 in Hyderabad (India) by Mr. Raju.

The firm started with 20 staff and expandedrapidly as a “global” business. It sold IT and business software for varioussectors. Satyam was as an example of “India’s growing success”. Satyam earnednumerous awards for innovation, governance, and corporate accountability. “In2007, Ernst & Young awarded the Chairman with the ‘Entrepreneur of theYear’ award. In September 2008, the World Council for Corporate Governanceawarded Satyam with the ‘Global Peacock Award’ for global excellence in corporateaccountability” 26. Unfortunately, less than five months after winning theGlobal Peacock Award, Satyam turned into a centre piece of a “massive”accounting fraud. By 2003, Satyam’s IT servicesbusinesses have 13,120 technical associates servicing over 300 customersworldwide.

At that time, the world-wide IT services market was assessed atnearly $400 billion, with an assessed annual growth rate of 6.4%. “The markets maindrivers were the main importance of IT services to businesses worldwide; the effectof the Internet on e-Business; the evolution of a high?qualityIT services industry in India and their methodologies; and, the increasing needof IT services providers who could supply a range of services”. To effectivelycompete, both against local and worldwide competitors, the company started todevelop multi business growth strategies.From2003-2008, Satyam earned USD $467 million in total sales. By March 2008, thecompany value grew to USD $2.

1 billion. The company proved “an annual growthrate of 35% over that period”. An Average Operating profits by 21%. Earningsper share similarly increased, from $0.12 to $0.62, with an annual growth rateof 40%. Over the same period (2003?2009), the average EBITDA multiple was 15.

36.Satyam clearly earned significant corporate growth and shareholder value. Thecompany became a leading star and a recognizable name in a global IT marketplace.

The external environment was beneficial to the company’s growth.