Abstract
From Enron, WorldCom and Satyam,it appears that corporate accounting fraud is a major problem that is increasing both in its frequency and severity. Research evidence has shown that growing number of frauds have undermined the integrity of financial reports, contributed to substantial economic losses, and eroded investors’ confidence regarding the usefulness and reliability of financial statements. The increasing rate of white-collar crimes demands stiff penalties, exemplary punishments, and effective enforcement of law with the right spirit.An attempt is made to examine and analyze in-depth the Satyam Computer’s “creative-accounting” scandal, whichbrought to limelight the importance of “ethics and corporate governance” (CG). The fraud committed by the founders of Satyam in 2009, is a testament to the fact “the science of conduct is swayed in large by human greed, ambition, and hunger for power, money, fame and glory”. Unlike Enron, which sank due to“agency”problem, Satyam was brought to its knee due to ‘tunneling’ effect. The Satyam scandal highlights the importance of securities laws and CG in ‘emerging’ markets. Indeed, Satyam fraud “spurred the government of Indiato tighten the CG norms to prevent recurrence of similar frauds in future”.Thus, major financial reporting frauds need to be studied for“lessons-learned”and“strategies-to-follow”to reduce the incidents of such frauds in the future.
Highlights
An attempt is made to examine and analyze in-depth the Satyam Computer’s “creative-accounting” scandal, which brought to limelight the importance of “ethics and corporate governance” (CG)
According to the Association of Certified Fraud Examiners (ACFE), fraud is “a deception or misrepresentation that an individual or entity makes knowing that misrepresentation could result in some unauthorized benefit to the individual or to the entity or some other party” [1]
Fifty-six percent of the approximately 2100 business professionals surveyed during a “Deloitte Forensic Center” [4] webcast about reducing fraud risk predicted that more financial statement fraud would be uncovered in 2010 and 2011 as compared to the previous three years
Summary
Fraud is a worldwide phenomenon that affects all continents and all sectors of the economy. Fraud encompasses a wide-range of illicit practices and illegal acts involving intentional deception, or misrepresentation. In fraud, groups of unscrupulous individuals manipulate, or influence the activities of a target business with the intention of making money, or obtaining goods through illegal or unfair means. Fraud cheats the target organization of its legitimate income and results in a loss of goods, money, and even goodwill and reputation. Fraud often employs illegal and immoral, or unfair means. It is essential that organizations build processes, procedures and controls that do not needlessly put employees in a position to commit fraud and that effectively detect fraudulent activity if it occurs. The fraud involving persons from the leadership level is known under the name “managerial fraud” and the one involving only entity’s employees is named “fraud by employees’ association”
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