Audit and Assurance in Australia: A Case Study of Satyam Computers

This report analyses the collapse of Satyam Computers and highlights the management and audit failures. It assesses the ethical behaviour of auditors and management in Australia. The report discusses the flaws in governance, unethical conduct, insider trading, falsified books of accounts, negligent board, and the dubious role of the audit committee. The report concludes with the failure of statutory auditors in discharging their roles and duty.

Running head: AUDIT AND ASSURANCE IN AUSTRALIA
Audit and Assurance in Australia
Name of the Student
Name of the University
Authors Note
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Table of Contents
Introduction:..................................................................................................................2
Statement by G Medcraft:.............................................................................................2
Purpose and audit report of Satyam India:...................................................................3
Extent of meeting auditing purposes:...........................................................................4
Evaluation of Satyam Company Management and Auditors ethical behaviour...........4
Background:..................................................................................................................4
Commencement of Problems:......................................................................................5
Flaws in governance and unethical conduct:...............................................................5
A case of Insider Trading:.............................................................................................6
Falsified books of accounts and Fake Accounting:......................................................7
Negligent board:...........................................................................................................7
Questionable role of Audit committee:.........................................................................8
False Audit:...................................................................................................................8
Conclusion:...................................................................................................................9
Reference List:............................................................................................................10

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Introduction:
Around two eras before corporate governance was comparatively unidentified
topic. The matter originated during the late 80’s and in the initial 90 when the
corporate governance sector in most the nations was bounded by difficulties of
dubious unethical practices. The failure of One Tel, Adelaide Seamanship, and
Satyam exposed the auditing gaps that led to the collapse of these companies.
Several failures gave rise to the reformation procedure and introduction of
public accounting reformation. The objective of this report is to assess the ethical
behaviour of auditors and management. The report will be analysing the collapse of
Satyam and highlight the management and audit failures.
Statement by G Medcraft:
Mr. G. Medcraft is regarded as the former chairman of the Australian
Securities and Exchange Comission and is concerned regarding the roles and
responsibilities of the auditors while performing the work of audit (Hayes, Wallage
and Gortemaker 2014). As evident from the statement of G. Medcraft it warns the
Australian accounting authority regarding the roles and accountabilities of auditors.
The statement made by G. Medcraft highlights his concern associated to auditor’s
dependency and trust on financial information. G. Medcraft stressed on specific
auditors roles and responsibilities.
The primary responsibility of auditor is to carry out the audit plan and
functions to get adequate evidence of financial statement whether those statements
are free from any materiality misstatement (De Paula 2016). On observing any
materiality misstatement, the auditors are required to comply with the ethical
principles surrounding audit to derive unbiased audit opinion. In the article of G.

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Medcraft, a serious lack of professional conduct and professional scepticism is noted
in the roles and responsibilities of auditors. The statement made by G. Medcraft
expressed his opinion that Australian auditing companies are required to avoid any
major unfolding of auditing scandals such as Enron that tarnishes the audit
profession.
As evident from the above conversation, of late there has been widespread
circumstances where the professional conduct and professional scepticism of
auditors have faced questions (William, Glover and Prawitt 2016). Instances noted
suggest that auditors have failed discharge their responsibilities. With the unfolding
of major audit fraudulent scandals, there is a lack of trust among the community
relating the financial information published by them.
Purpose and audit report of Satyam India:
Audit forms the important element in business firms and Saytam is no
exception to such reports. The audit report forms the opinion of the auditor
associated to financial statements of the organization (Kumar and Sharma 2015).
This requires an organization to follow a certain set of auditing standards and
procedures in the preparation of audit report. In context of Satyam, the primary
purpose of audit report was to provide the users of financial information with the
necessary information regarding the organization financial performance.
There were numerous users of financial report for Satyam that included
investors, auditors, customers, lenders, creditors etc. the users made use of the
financial report for making different forms of decision (Zeff 2016). The audit report
issued by the auditors failed to observe any form of fraud and error and stated that
the Satyam financial statements were free from any materiality misstatements. The

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PWC being the major auditor for Satyam since 2001 also erroneously reported that
financial statement of Satyam Computers were prepared by adhering to the required
auditing standards and financial reporting regulations. An opinion can be formed on
the PWC audit report that, being the sole auditor it failed to carry out the auditing
obligations in compliance with the necessary auditing standards.
Extent of meeting auditing purposes:
The opinion of the auditors entirely represented a different state of affairs for
Satyam Computers that was declared in the audit reports. Evidences obtained from
the findings truly provides that the auditors of Satyam Computers namely PWC,
contributed immensely to present the fraudulent financial statement of the
organization (Vasarhelyi, Alles and Kogan 2018). The fraudulent act landed PWC
with a fine of $6 million handed by United States Securities and Exchange
Commission. Besides this, the US Securities and Exchange Commission along with
Securities and Exchange Board of India (SEBI) banned PWC from conducting any
audit work since it failed to adhere with the necessary auditing standards and
procedure.
The auditors of the Satyam computers did not met the auditing principles
while performing the audit procedure and ultimately contributed to the decline of the
company. The auditors simply overlooked the materiality misstatement in the
financial statements that failed to reflect a true and fair view of the financial situation
of the business (Wilson 2017). With falsified books of accounts and the existence of
insider trading evidently contributed to the decline of Satyam Computers.

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Evaluation of Satyam Company Management and Auditors ethical behaviour
Background:
During the year 1987 on 24th June Satyam Computer Service Ltd was
incorporated as the private limited company with 20 staffs. The company provided
software development and consultancy services to large number of corporations
(Samsonova-Taddei and Siddiqui 2016). The company during 1997 was selected by
World Economic Forum as one of the most remarkably growing company in India.
The company was also ranked 3rd position in respect of corporate governance survey
by the Global Institutional investors.
Commencement of Problems:
The problems in Satyam commenced during December 2008 when the
chairman of Satyam publicized a surprise move of $1.6 billion bid for Maytas
Infrastructure Ltd and Maytas Properties Ltd. The chairman asserted that he wanted
to use the accessible cash for the investors benefit (Shaub and Braun 2014).
Thumbs down from the investors and market forced the chairman to withdrawal of
bid inside 12 hour span. Satyam share prices fell by 55% relating to the concerns of
Satyam corporate governance.
The world bank barred Satyam for a period of eight years for giving unsuitable
benefits and was also charged with data stealing and corrupting to workforce. The
price of share for Satyam also declined by another 14% and was lowest in 4 years
(Arens et al. 2016). Finally the chairman of Satyam confessed regarding 7800 crore
fraud. A week later the scandalous confession the auditors of Satyam Price
Waterhouse lastly confessed that the audit reports provided was incurred and was
based on the incorrect monetary report provided by the management of Satyam.

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Flaws in governance and unethical conduct:
In Satyam there was hardly any clear or understood code of ethics that
surrounded the business principles of the company (Mohapatra, Graham and
Nandialath 2015). Corruption, fraud and exchange of favours both inside and outside
of the corporation was the common occurrence. The World Bank was tool late in
publicizing the unethical work conduct of Satyam by publicising the data theft
charges that was imposed on Satyam and bribing of staff. Following this, Satyam
was banded from any trade with World Bank for a period of eight years as the
company was charged with giving unfitting benefits to staff. The ethical standards of
the company therefore was poor.
Evidently, the CEO and the CFO of Satyam were charge for putting forward
the self-interest ahead of the interest of the company. The chairpersons were found
to be actively selling the large proportion of their shareholdings prior to admitting the
scandal of fraud (Narayanaswamy, Raghunandan and Rama 2015). The senior
executives of Satyam were found to be behaving in an unethical manner with no
instances of moral code of conduct. The behaviour of the top executives provided
the evidences of exploitation of corporation’s funds for private benefit for numerous
years.
A case of Insider Trading:
The investigation reports suggest that the promoters of Satyam computers
have engaged themselves in most awful form of insider trading of the Satyam’s
shares to raise cash for creating a large land of bank (Mock, Ragothaman and
Srivastava 2018). The funds obtained through shares were employed to purchase
lands in the name of the family members with all of the members held equity
participation in these companies. The chairperson were held chargeable for using

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the fund in offloading the shares to purchase their lands. The promoters with the help
of inflated books posed a healthy financial situation of the company in the market.
During this course of time period the promoters held their purpose to offload their
shares on regular breaks.
The investigation agencies are puzzled because the deals were struck by the
chairman when the market was functioning far below Rs 500. Following the
confession of the chairperson the prices of the shares fell to all below of Rs 6.30
(Solieri and Hodowanitz 2016). Even though the chairman of Satyam and chairman
of SFIO were separated however discoveries suggest that the chairperson were
working together to defraud their stakeholders for the purpose of personal gain.
Falsified books of accounts and Fake Accounting:
Evidences from the findings suggest that the balance sheet of the Satyam
carried on an accrued interest that amounted to 376 crores that did not existed in
reality. The false figure of accrued interest was presented in the balance sheet to
supress the identification of non-existent fixed deposit based on the inflated profits
(Bhasin 2016). Investigations findings suggest that the business had purposely paid
the more taxes on account of non-existed accrued interest that constituted
considerable amount of loss for company. The company created an untruthful
impression regarding the fixed deposits that summed around 3318.37 crore while the
company originally held fixed deposits receipts of just 9.96 crore.
Negligent board:
The lax board system has failed to question the strategy of management and
employed leverage in recasting the firm. The board were very slow to react once it
was evident that Satyam was in monetary misery (Pai and Tolleson 2015). The lax

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board overlooked or were unsuccessful to act on the serious info associated to
incorrect activities prior to the ultimate collapse of the organization. The aggressive
bidding of Maytas companies resulted in strong decline in their share prices and bid
as it deteriorated by 55% raising concerns about the company’s governance. Though
some of the independent director withdrew from the board but by then it was very
late.
Dubious role of Audit committee:
The actual function of audit committee is to make sure that the transparency
in the business relating to monetary disclosure and fiscal declarations that provided
appropriate, adequate and admirable picture and should be free from fraud and
failures (Bhasin 2016). Timely taking of actions by the audit committee for the
information supplied by the whistle-blower could have helped in acting as the SOS to
Satyam. However, the audit committee chose to maintain silence and did not
disclosed the issue to the shareholders and the regulatory bodies.
False Audit:
PWC was the auditor of the Satyam and was auditing their financial records
from the year 2001. The fraudulent role of PWC in Satyam’s failure raised the
question of auditing integrity. Investigation reports suggest that the statutory auditors
rather using the mechanism for independent testing employed investigation tools of
Satyam and compromised the auditing standards (Solieri and Hodowanitz 2016).
The final straw in the deficiencies of statutory auditing standards was in spite of
detecting the control shortages in the info system and the risk of disclosure to the
scams, PWC elected to maintain silence and did not reported the material fraudulent
activities to the shareholders.

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The global audit head of PWC stated that despite the coverage and the
resources of internal audit was not in balance with the business dimensions. PWC
simply overlooked the evidences and certified the company (Mock, Ragothaman and
Srivastava 2018). The statutory auditors were failure on their part of discharging their
roles and duty when the situation of autonomously authenticating the cash and bank
balances both in respect of current account and fixed deposits.
Conclusion:
The fraudulent activities of Satyam has devastated the thoughts of several
groups of investors, upset the government and regulators. The scandal raised
questions on accounting practices and corporate governance standards. The study
evidently puts forward numerous corporate governance problems and audit failures
that caused the decline of Satyam. Several such evidences has been noticed in
USA, Australia and UK however these nations have strongly reacted to the corporate
failures and code of ethics that came to the centre stage.
Corporate humiliations and audit failures have triggered reformation in the
accounting practices and corporate governance. The primary purpose of the
reformation is to gain the investors’ confidence and preventing the audit frauds by
ensuring transparency in disclosure of information. Though the mechanism of
corporate governance cannot alone prevent the unethical practices of top
management but would help in at least ensuring that such things be detected before
it is very late.

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assurance services. Pearson.
Bhasin, M.L., 2016. Debacle of Satyam Computers Limited: A Case Study of India’s
Enron. Wulfenia Journal KLAGENFURT, 23(3), pp.124-162.
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