Satyam Scandal

1623 Words Jun 25th, 2012 7 Pages
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,
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The manager of the company needs to understand the effects of the accounting reporting that they reported so they can make the best decision on behalf of the company.

In addition, earnings management is a strategy used by the management of a company to appropriately manipulate the company’s earnings so that the figures match a pre-determined target. This practice is carried out for the purpose of income smoothing. Thus, rather than having years of good or bad earnings, companies will try to keep the figures relatively stable by adding and removing cash from reserve accounts. So, the financial statements of the company will be seen smoothly over the years with the smooth earnings or net profits. The reasons for many companies using earnings management within the company are whether to maintain steady earnings growth or to avoid reporting in losses. So, people use earnings management in different ways to cover their activities, whether the activities are acceptable or not acceptable. The earnings management is not be called as not acceptable activities if the activities not manipulate financial statements and report results that is not really incurred in reality. In other word, the earnings management will be not acceptable if it misrepresenting financial results.

Some earnings management can be classified as acceptable and some can be classified as not acceptable. The instance of acceptable earnings management is advertising

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