Abuse of Creative Accounting Practices at Satyam Computer Services Limited: A Tale of India’s Enron.


Dr. Madan Lal Bhasin ,

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Volume 5 - June 2016 (06)


Creative accounting (CA) involves the „manipulation‟ of company financial records towards a „pre-determined‟ target. Unfortunately, few „loopholes‟ in the accounting standards provide enough room for the use of CA practices. Satyam‟s case has been widely regarded as the debacle of the Indian financial system, which is very often referred to as India‟s „Enron‟. Unlike Enron, which sank due to „agency‟ problem, Satyam was brought to its knee due to „tunneling‟ effect. Keen to project a perpetually rosy picture of the company to the investors, employees and analysts, Raju manipulated the account books so that it appeared a far bigger enterprise than it actually was. The present study provides a „snapshot‟ of how Mr. Raju, CEO and Chairman of Satyam, „mastermind‟ this maze of CA? Undoubtedly, Satyam scam is clearly a case of abuse of CA, in which the accounts were manipulated by creating fake invoices, inflating revenues, falsifying the cash and bank balances, showing non-existent interest on fixed deposits, showing ghost employees, and so on. This type of CA is both illegal and unethical. In its recent indictment of the former promoters and top managers of Satyam, various investigative agencies (viz., SEBI, CBI, CID, SFIO, etc.) in India had finally provided minute and fascinating details about how India‟s largest corporate scam was committed. An attempt has been made by the author, based on media reports, to provide a description about the CA methodology used by the Satyam to commit the accounting fraud, duly supported by evidence wherever possible. An attempt has been made to provide an explanation for various „intriguing‟ questions, such as: What was the need to commit a fraud on such a large scale?, How Raju managed to cooked up Satyam books?, What was Raju‟s real modus operandi to manipulate the accounts for eight years?, Why was Raju forced to blow his own whistle?, Why was not there a stricter punitive action against the auditors of Satyam PwC?” After thorough investigations, both the CBI and SEBI have revealed the manner in which the Satyam fraud was engineered. We recommend that “CA practices should be considered as a serious crime, and as such, accounting bodies, law courts and other regulatory authorities need to adopt very strict punitive measures to stop unethical CA practices.”  


Creative Accounting, Satyam Computer, Financial Statements, Corporate Governance, Forensic Accounting, SEBI, SFIO, CID, India.


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