AFM 351 Satyam Fraud
AFM 351: Audit Strategies Satyam Fraud: A case of India’s Enron
1.
Describe the governance structure at Satyam. What was the “tone-at-the-top” at Satyam during the fraud period? •
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2.
In terms of the confirmation of cash balances, what deficiencies can you identify in terms of the procedures followed in the Satyam engagement?
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3.
Ramalinga Raju was the Chairman of the Board
His brother, Rama Raju, was the Managing Director and CEO
They both had direct operational control over all aspects of the company’s operations.
The “tone-at-the-top” during the fraud period was fairly unethical, however, the whole company was not completely unethical.
The leaders of the specific business units may have had a higher ethical standpoint because the senior management was cautious and thought that they would question the validity of the fake customers and invoices. The senior management would constantly override the accounting systems with the use of the “superuser” login identification.
These “super-user” login identifications masked the existence of the fake invoices from the leaders of the business units
The first deficiency is that the engagement team relied on the senior management to send the confirmation requests to the bank. o The auditors should never relinquish control of their testing to the client. o They must always maintain complete control over their testing
The second deficiency is that the engagement team received confirmations from the senior management and they relied of those confirmations as audit evidence o Confirmations are meant to be a third-party representation of the amounts in the account. o Auditors should only rely on confirmations sent out by them and received directly from the third party o Even confirmations that were from third parties that were first sent to the client are significantly lower quality evidence.
The third deficiency is that the engagement team discovered significant discrepancies between
1.
Describe the governance structure at Satyam. What was the “tone-at-the-top” at Satyam during the fraud period? •
•
•
•
•
•
•
2.
In terms of the confirmation of cash balances, what deficiencies can you identify in terms of the procedures followed in the Satyam engagement?
•
•
•
•
3.
Ramalinga Raju was the Chairman of the Board
His brother, Rama Raju, was the Managing Director and CEO
They both had direct operational control over all aspects of the company’s operations.
The “tone-at-the-top” during the fraud period was fairly unethical, however, the whole company was not completely unethical.
The leaders of the specific business units may have had a higher ethical standpoint because the senior management was cautious and thought that they would question the validity of the fake customers and invoices. The senior management would constantly override the accounting systems with the use of the “superuser” login identification.
These “super-user” login identifications masked the existence of the fake invoices from the leaders of the business units
The first deficiency is that the engagement team relied on the senior management to send the confirmation requests to the bank. o The auditors should never relinquish control of their testing to the client. o They must always maintain complete control over their testing
The second deficiency is that the engagement team received confirmations from the senior management and they relied of those confirmations as audit evidence o Confirmations are meant to be a third-party representation of the amounts in the account. o Auditors should only rely on confirmations sent out by them and received directly from the third party o Even confirmations that were from third parties that were first sent to the client are significantly lower quality evidence.
The third deficiency is that the engagement team discovered significant discrepancies between