Accounting Manipulations in Corporate Financial Reports: Study of an Asian Market.

Author(s)

Dr. Madan Lal Bhasin ,

Download Full PDF Pages: 22-45 | Views: 354 | Downloads: 113 | DOI: 10.5281/zenodo.3466194

Volume 5 - November 2016 (11)

Abstract

Accounting manipulations (AM) in corporate „financial reports‟ are perennial; they had occurred in all eras, in all countries and affected millions of corporations. Unfortunately, there are some „loopholes‟ in accounting and auditing standards, which provide ample leeway to corporate managers‟ and thus, motivate accounting professionals to make frequent manipulations in corporate financial reports. In fact, accounting manipulation (AM) involves the intentional „cooking-up‟ of financial records & reports towards a pre-determined target. Every company indeed „maneuvers‟ the numbers reported in its financial reports (FR), to a certain extent, to achieve their „budgetary‟ targets and be generous to „reward‟ senior managers. Factors such as greed, desperation, immorality and bad judgment drive some executives to „fudge‟ the FR and account books. From Enron, WorldCom to Satyam, it appeared that window-dressing of FR leading to AM is a serious problem that is increasing both in its frequency and severity, which undermines the „integrity‟ of FR and „eroded‟ investors‟ confidence. The responsibility 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 FR system. Satyam computers were once the „crown-jewel‟ of Indian IT-industry but were brought to the ground by its founders in 2009 as a result of financial „crime‟. The present study provides a „snapshot‟ of how Mr. Raju (CEO and Chairman) „mastermind‟ this maze of AM practices? 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-existent 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. An attempt has been made by the author to provide a description about the AM methodology used by the Satyam to commit the accounting fraud, duly supported by evidence wherever possible. Finally, we recommend that “All types of AM practices should be legally recognized as crime and accounting bodies, law courts and other regulatory authorities must adopt exemplary punitive measures to prevent such unethical practices.”

Keywords

Frauds and scams, accounting manipulation, financial reports, FS, modus-operandi used, Satyam computer, topmanagement team, corporate governance, forensic accounting, SEBI, SFIO, CBI, CID, India.

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