WorldCom and Satyam: Accounting Scams in the US and India

            
 
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Case Details:

Case Code : FINC077
Case Length : 24 pages
Period : 2002-2009
Pub. Date : 2012
Teaching Note : Not Available
Organization : WorldCom, Satyam, Teach Mahindra, Mahindra Satyam
Industry : IT, IT Services, Telecommunication
Countries : US,India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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Excerpts Contd...

The Maytas Fiasco

The accounting tactic of inflating revenues at WorldCom was also practiced at Satyam. In a bid to show that the company enjoyed a strong financial position, the company reported that as on September 30, 2008, it had cash reserves of US$ 1.2 billion. On December 16, 2008, the company announced that it planned to use these cash reserves to acquire two companies - Maytas Infra and Maytas Properties...

Internal Audit

WorldCom had an audit committee that consisted of 11 directors, out of which eight were independent. The objective of the audit committee was to review the company's financial statements,

Finance | Case Study in Management, Operations, Strategies, Finance, Case Studies

-monitor internal accounting control activities, communicate with the company's external auditors, and review internal accounting control activities. However, media reports claimed that WorldCom's board of directors had failed to fulfill their basic responsibilities...

Outside Auditors

From 1990 to 2002, WorldCom's independent external auditor was Arthur Andersen (Andersen). It anticipated its relationship with WorldCom as long term and wanted to be considered as a committed member of the WorldCom team...

The Board of Directors

Between 1999 and 2002, WorldCom's board comprised 50 percent of non executive members. The board members, most of whom were former owners, officers, or directors of companies acquired by WorldCom, included experts in finance, law, and the telecommunications industry...

The Aftermath

On June 20, 2002, Cooper and her internal audit team met WorldCom's audit committee and revealed their findings of inappropriate capitalized expenses. The board told Sullivan and Myers to resign immediately. On June 25, 2002, WorldCom announced that its profits had been inflated by US$ 3.8 billion over the previous five quarters...

Exhibits

Exhibit I: WorldCom's Major Acquisitions
Exhibit II: Accounting Discrepancies at WorldCom (in US$ billion)
Exhibit III: Satyam Computers - Stock Price Chart (March 2008 - March 2009)
Exhibit IV: Satyam's Quarterwise Financial Details (June 2007 - September 2008)
Exhibit V: How Satyam Inflated Profits?
Exhibit VI: Fictitious Entries and Unrecorded Transactions in Satyam Accounts(April 2002 to September 2008)
Exhibit VII: WorldCom's Restated Financials
Exhibit VIII: Four Year Financial Summary of Satyam


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