satyam
Case 1a: Satyam Accounting Scandal
Mahindra Satyam is an IT company in India that recently perpetrated a large accounting scandal.
To complete this assignment, you should first conduct research using the Internet to better
understand Satyam and its fraud. Second, use the Internet and your understanding of class
material to answer the following questions.
Questions:
1. (a) In general, what is the role of information asymmetry in accounting scandals?
Information asymmetry generally occurs when the manager has more information
about a company than the owner does; but it can occur when any person or group of
people knows more than another. This imbalance of power is often part of the cause
of accounting scandals. For instance, if a manager of a corporation knows more or has
better information than the owner, it would be easy for the manager to falsify documents
to his liking. For an accounting scandal to occur there must be information asymmetry
somewhere. Unless, of course, the entire company is in on the fraud, in which there
would be no need for the asymmetry. If one person knows something that nobody else
does, then it is very easy for that person to use that knowledge to better himself or the
company, with little regard to what is legal or even ethical.
(b) What is the auditor’s role with respect to information asymmetry?
Auditors are hired to express their opinion on the fairness of a company’s financial
information and whether or not they have reported everything according to generally
accepted accounting principles. Inherent in that, then, is that the auditors should make
every effort to ascertain that all of the information presented in the financial statements
is accurate, and that all the information provided is accounted for somewhere. If an
auditor does this correctly, he/she should potentially catch any significant information
asymmetry errors and can take the
Mahindra Satyam is an IT company in India that recently perpetrated a large accounting scandal.
To complete this assignment, you should first conduct research using the Internet to better
understand Satyam and its fraud. Second, use the Internet and your understanding of class
material to answer the following questions.
Questions:
1. (a) In general, what is the role of information asymmetry in accounting scandals?
Information asymmetry generally occurs when the manager has more information
about a company than the owner does; but it can occur when any person or group of
people knows more than another. This imbalance of power is often part of the cause
of accounting scandals. For instance, if a manager of a corporation knows more or has
better information than the owner, it would be easy for the manager to falsify documents
to his liking. For an accounting scandal to occur there must be information asymmetry
somewhere. Unless, of course, the entire company is in on the fraud, in which there
would be no need for the asymmetry. If one person knows something that nobody else
does, then it is very easy for that person to use that knowledge to better himself or the
company, with little regard to what is legal or even ethical.
(b) What is the auditor’s role with respect to information asymmetry?
Auditors are hired to express their opinion on the fairness of a company’s financial
information and whether or not they have reported everything according to generally
accepted accounting principles. Inherent in that, then, is that the auditors should make
every effort to ascertain that all of the information presented in the financial statements
is accurate, and that all the information provided is accounted for somewhere. If an
auditor does this correctly, he/she should potentially catch any significant information
asymmetry errors and can take the