FINAL PPT ACCOUNTS

WorldCom Inc’s: 

WorldCom Inc’s Chairman: Bernard J . Ebbers (CEO) Auditor: Arthur Andersen’s Provide telecommunication service Aquired MCI in 1998 ,a global business and residential telecom industry

WorldCom: 

WorldCom In 1998 the telecommunication industry saw a decline with a reduction in stock of WorldCom. CEO came under increasing pressure from banks to cover margin calls on his WorldCom . Beginning in 1999 and continuing through May 2002.

How was it done: 

How was it done WorldCom's accounting department underreported 'line costs' (expenses with other telecommunication companies) by capitalizing these costs on the balance sheet rather than properly expensing them T he company inflated revenues with bogus accounting entries from corporate unallocated revenue accounts .

Overstating Asset Fraud: 

Overstating Asset Fraud Overstatement of current assets(marketable securities ) Capitalizing as assets amounts that should be expensed Failing to record depreciation/amortization expense Overstating assets through mergers and acquisitions Overstating inventory and receivables

How was it discovered: 

How was it discovered The first discovery of illegal activity was by WorldCom's own internal audit department who uncovered $3.8 b. of the fraud in June 2002. The Securities and Exchange Commission (SEC) launched an investigation. By the end of 2003, it was estimated that the company's total assets had been inflated by around $11 billion

How it ended: 

How it ended On July 21, 2002, WorldCom filed for Chapter 11 bankruptcy protection. The company emerged from Chapter 11 bankruptcy in 2004 becoming MCI On March 15, 2005 Bernard Ebbers (CEO) was found guilty of all charges and convicted on fraud, conspiracy and filing false documents with regulators

Reasons behind the scam.: 

Reasons behind the scam. Corporate issues Earnings pressure Lack of mandated disclosure of company reporting model Minimal oversight into corporate business practices No documented or enforced internal controls Auditing issues Dependency on consulting fees Assumed good intent of their client Inability to continuously monitor a company’s internal controls Unable to identify violations of internal controls

Government’s reaction: 

Government’s reaction The congress passed Sarbanes- oxley act. Section 103 : Your auditor (and therefore, you should) maintain all audit related records, including electronic ones, for seven years. Section 201 : Firms that audit your company’s books can no longer provide you with IT related services. Section 301 : You must provide systems or procedures that allow employees to communicate effectively with the audit committee .

Highlights contd.: 

Highlights contd. Section 302: Your CEO and CFO must sign statements verifying the completeness and accuracy of financial reports. Sections 404 CEO’s, CFO’s and outside auditors must attest to the effectiveness and accuracy of financial reports . Section 409: Companies must report material changes in their financial conditions “on a rapid and current basis.” The act calls it “real-time” disclosure but is unclear on what it means .

Benefits of Sarbanes-Oxley act: 

Benefits of Sarbanes-Oxley act Increased confidence of CEO/CFO in meeting requirements Improved coordination of Company Management Team Improved and clarified Corporate Governance process Systematized process for early identification of business risks/ whistle blowing issues/incident management Systematized approach to dealing with change (i.e., transactions, personnel, accounting principles, internal controls and operating procedures) Increased operational effectiveness

SATYAM COMPUTERS: 

SATYAM COMPUTERS Chairman B. Ramalinga Raju Satyam network covers 67 countries across six continents . It servers over 654 global companies. Was the 2008 winner of the coveted Golden Peacock Award

Satyam Scam (India’s own enron scandal): 

Satyam Scam (India’s own enron scandal) Auditor: PRICEWATERHOUSECOOPERS (PwC) Acquisition by Mahindra Group

Slide 14: 

THE ILLIUSIONISTS RAMALINGAN RAJU - CHAIRMAN B RAMA RAJU - MANAGING DIRECTOR V SRINIVAS - CHIEF FINANCIAL OFFICER S GOPALAKRISHNAN - PWC AUDITOR TALLURI SRINIVAS - PWC AUDITOR

Slide 15: 

World bank caught 2 Satyam employees hacking into sensitive information. As a result, the World Bank severed all ties with the company. To follow this up, Ramalinga Raju announced that satyam will acquire Maytas Infrastructure and Maytas Properties at $ 1.6 billion Efforts in this direction were withdrawn under pressure from shareholders . Satyam’s ADRs (American Depository Receipt) fell by 50% overnight following this incident . Upaid Systems alleged Satyam of intellectual fraud and forgery and made a claim of $1 billion. Downfall of satyam

Slide 16: 

Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998, compared to a high of 544 rupees in 2008 . In New York Stock Exchange Satyam shares peaked in 2008 at US$ 29.10; by March 2009 they were trading around US $1.80 Companies worth came down from 11464cr to 1607cr. Effects Of Scam

APPROX BALANCE SHEET: 

APPROX BALANCE SHEET LIABILITIES ASSETS CURRENT LIABILTIES 1669.2 INVESTMENT 618.64 PROVISIONS 496.7 DEBTORS 490 CASH AND BANK BAL 5312.62 INTEREST ACCRUED ON FIXED DEPOSIT 376.34 LOANS AND ADVANSES 502.22 5040+376+1230+490=7136 Actual debt was Rs 2161 overstated 490cr Actual bank bal was 321cr inflected to 5040cr No accrued interest 376.34cr Understated liability 1230cr, which was arranged by Mr. Raju

Slide 18: 

Inflated figures for cash and bank balances of Rs 5,040 cr (US $ 1.04 billion) (as against Rs 5,361 cr (US$ 1.1 billion) cr reflected in the books). An accrued interest of Rs. 376 cr (US$ 77.46 million) which was non-existent. An understated liability of Rs. 1,230 cr (US$ 253.38 million) on account of funds was arranged by himself. An overstated debtors position of Rs. 490 cr (US$ 100.94 million) (as against Rs. 2,651 cr (US$ 546.11 million) in the books). What was scam about !!!!

Slide 19: 

CONTD….. For the September 08 quarter satyam reported a revenue of Rs.2,700 crore and an operating margin of Rs. 649 crore as against the actual revenues of Rs. 2,112 crore and an actual operating margin of Rs. 61 Crore . This has resulted in artificial cash and bank balances going up by Rs. 588 crore in Q2 alone. Actual number of employees is only 40,000 but Mr. Raju was showing 53,000 and had been allegedly withdrawing INR 20 Cr rupees every month for paying these 13,000 non-existent employees. Raju said “It was like riding a tiger, not knowing how to get off without being eaten”

Slide 20: 

Action By Government On 11 th Jan 2009 Government nominated noted banker Deepak Parekh former NASSCOM chief Kiran Karnik and former SEBI member C Achuthan to Satyam's board. SEBI and CBI need to be proactive in their approach Regulators and executives should be held accountable Properly trained vigilance officers need to be Appointed. The penalties should be substantial. The prosecution and conviction process should be speedy

Slide 21: 

Whistle blowers should be granted security and income protection Auditors should be more detail oriented and should be accountable for all certified work . There should be provisions to recover the losses. There should be special provisions for family based business. Management should take into consideration shareholder’s opinion. Provisions should be make to recover the losses that the company makes due to wrongful acts.. Govt.’s action Continued….