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Window dressing of financial statement

The Satyam Computer Services scandal involved founder Ramalinga Raju admitting to extensive financial fraud through window dressing techniques, including inflated revenues and overstated assets. The revelation in January 2009 led to a collapse in share prices, erosion of investor trust, and significant legal and regulatory actions. This case prompted reforms in corporate governance and financial reporting standards in India, emphasizing the need for transparency and ethical practices.

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Mohammed Hamza Khan
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16 views

Window dressing of financial statement

The Satyam Computer Services scandal involved founder Ramalinga Raju admitting to extensive financial fraud through window dressing techniques, including inflated revenues and overstated assets. The revelation in January 2009 led to a collapse in share prices, erosion of investor trust, and significant legal and regulatory actions. This case prompted reforms in corporate governance and financial reporting standards in India, emphasizing the need for transparency and ethical practices.

Uploaded by

Mohammed Hamza Khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Window Dressing: Satyam Computer Services

One prominent example of window dressing in India's corporate history is the case of Satyam
Computer Services. Satyam was a major IT services company that provided software
development, business process outsourcing, and other technology services. The company's
founder and chairman, Ramalinga Raju, shocked the business world in January 2009 by
admitting to a massive financial fraud that involved extensive window dressing.
Background:
Satyam had been reporting impressive financial figures for years, attracting investments and
contracts from both domestic and international clients. However the company's financial
health was far from what was being portrayed.

Window Dressing Techniques Used:


Inflated Revenue and Profits: Satyam manipulated its financial statements by inflating its
revenue and profits through fictitious invoices and fake clients. This created an illusion of
consistent growth and profitability.

Overstated Assets: Satyam artificially inflated its asset base by including non-existent assets,
which boosted the company's perceived financial strength.

Understated Liabilities: The company understated its liabilities to maintain the appearance
of a healthy debt-to-equity ratio and strong financial position.

Revelation and Consequences:


In January 2009, Ramalinga Raju confessed to the financial fraud in a letter to Satyam's
board of directors. He revealed that the company's reported cash and bank balances of over
$1 billion were largely non-existent, and that the company had been engaged in fraudulent
activities for several years. The revelation sent shockwaves through the Indian corporate
sector and the global business community.

Impact:

Share Price Collapse: Following the revelation, Satyam's share price plummeted, leading to
significant losses for investors.

Trust Erosion: The case severely damaged investor trust in Indian companies and raised
concerns about corporate governance and transparency in the country.

Legal and Regulatory Action: The Indian government stepped in to oversee the company's
operations, and legal proceedings were initiated against Raju and other involved parties.

New Ownership: To rescue the company, a government-led auction process resulted in Tech
Mahindra acquiring a controlling stake in Satyam, leading to its eventual rebranding as
"Mahindra Satyam" and later as "Tech Mahindra."
Reform Initiatives: The Satyam scandal prompted regulatory reforms in India to enhance
corporate governance, financial reporting, and auditing standards.

The Satyam scandal serves as a cautionary tale about the consequences of window dressing
and financial manipulation. It highlighted the importance of strong corporate governance,
transparency, and ethical financial reporting practices in maintaining investor confidence and
the integrity of financial markets.

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