Satyam 9000 Crore Scandal

The biggest corporate scandal in India, Satyam Scandal where the promoter and chairman Ramalinga Raju fudged the accounting inflating assets and understating liabilities manipulating accounts by $1.47 billion (present value is approximately Rs. 9000 Crores).

  1. Inflating Receivables (Sales) – He raised fake invoices and used an emergency system of feeding the same to the company’s inventory management software thus bypassing validations. He also generated a “Super User” code that enabled him to hide the fake invoices for obvious reasons. CBI said in a statement

    Investigations revealed that the accused have already entered 6,603 out of these false and fabricated invoices amounting to Rs 4,746 crore into their books of accounts thereby inflating the revenues of the company to this tune.

  2. Understated Liability – It amounted to Rs. 1230 Crores.
  3. Overstating no. of Employees –CID told in court that the actual number of employees is only 40,000 and not 53,000 as reported earlier and that Mr. Raju had been allegedly withdrawing Rs. 20 Crores every month for paying these 13,000 non-existent employees. Read More »
9 legal ways to inflate profit

9 Legal Ways to Inflate Profits

A company may want to increase its profits to increase its share value in the market, to improve credit worthiness of the company, to get more public exposure, to prevent itself from takeovers and to have a bargain position while making acquisition deals.

  1. Inflate sales – Double the units of sale or triple it as per need. Then at the end of the financial year, just reverse it showing it as sales return. Now, how the profit is inflated? In quarterly results of the company, the profit is inflated thereby increasing credit worthiness which can be used to dominate acquisition deals or further public issues.
  2. Charge less depreciation – Depreciation is a non-cash flow. So it can be modified to any value by making a policy change in the books. A reduction in depreciation means more profit.
  3. Convert long term to short term assets – During revaluation of short term assets, a part of fixed assets can be transferred to current assets (i.e. short term assets) and can be revalued and shown as an income in the P/L account to inflate profit further. Read More »
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