Satyam Scandal
SATYAM SCANDAL
I. Analyze the case and respond to the following questions: (a) Discuss the earnings management techniques employed by the management of Satyam.
In this case of Satyam, I can conclude that the obvious technique employed by the said management are: 1. “Big Bet on The Future”.
When an acquisition occurs, the company acquiring the other is said to have made a big bet on the future. As refer to this case, Ramalingam Raju the Chairman of Satyam Computer Services Ltd. believes the acquisition of Maytas Infra and Maytas Properties will benefit Satyam and boost its earnings in the future.
The first instance is when he knows both Maytas companies are highly growth company in developmental infrastructure. So, after the acquisition, he may claim the earnings of the recently acquired corporation providing an automatic earning boost.
Apart from that, other justification brought up by Raju regarding this buyout deal are the acquisitions may de-risk Satyam’s core IT business by adding a new business vertical in infrastructure. From this statement, we can see that Satyam is slowly planning to diversify its business into infrastructure sector. By acquiring Maytas, he already write-off the continuing R&D costs from Maytas. This means that when the costs are actually incurred in the future, they will not have to be reported and thus future earnings will receive a boost.
(b) In your opinion, why do the managers of Satyam want to manage their earnings and subsequently be engaged in fraudulent activities?
In today’s material world, many companies give an extra focus on how they could achieve high profit from their business. This profit will determine the number of earning they make. Lenders and investors almost always look at the quality of this figure to assess the “health” of a company. For instance, an investor would attract to invest in a company that has high liquid ratio because they have the ability to meet its debt
I. Analyze the case and respond to the following questions: (a) Discuss the earnings management techniques employed by the management of Satyam.
In this case of Satyam, I can conclude that the obvious technique employed by the said management are: 1. “Big Bet on The Future”.
When an acquisition occurs, the company acquiring the other is said to have made a big bet on the future. As refer to this case, Ramalingam Raju the Chairman of Satyam Computer Services Ltd. believes the acquisition of Maytas Infra and Maytas Properties will benefit Satyam and boost its earnings in the future.
The first instance is when he knows both Maytas companies are highly growth company in developmental infrastructure. So, after the acquisition, he may claim the earnings of the recently acquired corporation providing an automatic earning boost.
Apart from that, other justification brought up by Raju regarding this buyout deal are the acquisitions may de-risk Satyam’s core IT business by adding a new business vertical in infrastructure. From this statement, we can see that Satyam is slowly planning to diversify its business into infrastructure sector. By acquiring Maytas, he already write-off the continuing R&D costs from Maytas. This means that when the costs are actually incurred in the future, they will not have to be reported and thus future earnings will receive a boost.
(b) In your opinion, why do the managers of Satyam want to manage their earnings and subsequently be engaged in fraudulent activities?
In today’s material world, many companies give an extra focus on how they could achieve high profit from their business. This profit will determine the number of earning they make. Lenders and investors almost always look at the quality of this figure to assess the “health” of a company. For instance, an investor would attract to invest in a company that has high liquid ratio because they have the ability to meet its debt