Accounting Information System
Question 1
The first component of the accounting triangle is pressure. The component constitutes the motives underlying the commission of the fraudulent activity. Raju also experienced pressure for the desire to produce good results from investors and shareholders, and the limelight in the corporate world pressurized Chairman Raju to commit the fraud. Besides, he had greed for money. The second element of the fraud triangle is the opportunity, and it defines the means through which the individual will commit and conceal the fraudulent activity. Mr. Raju’s position as the Chairman of Satyam gave him access and a chance to manipulate the financial reports. The weak corporate governance provided an opportunity for Chairman Raju to conceal his activities for years. The third component of the fraud triangle is rationalization, and it involves justification for engaging in the scandal. According to Bhasin (2013), Mr. Raju asserted that he engaged in fraud to transform the firm into real-estate investment, increase the profits, as well as raise the compensation of executives.
Satyam fraud had detrimental impacts on the stakeholders. Investors incurred a loss of 2.82 billion US dollars (Bhasin, 2013). The scam led to the layoffs and improper payment to the employees in the company. PwC, the international auditor, incurred a fine and a damaged reputation. The government of India is a stakeholder for all the companies in the country. The country’s rupee fell, and the equity markets tumbled. Chairman Raju faced legal implications, including fines and imprisonment.
Question 2
An Action that May Be Legal but Not Ethical
The dilution of holding in Satyam by Raju is an action that can be legal but unethical. Between 2001 and 2008, Satyam promoters diluted their holding from 25.6 percent to 8.74 percent (Bhasin, 2013). The promoters can legally dilute their holdings in a business firm. Nevertheless, the current action is unethical because Chairman Raju would act to the detriment of the shareholders by overstating the company’s profits. Resolving the current dilemma requires Chairman Raju to ask questions regarding the merits and demerits of reducing the shares considering different vantage points, including the law, investors, himself, and the company
What May Be Ethical but Sometimes Not Legal
Falsifying accounting records can be supported under ethical grounds if it brings considerable benefits. The motive to misrepresent the financial documents was to enhance the survival of the company. Satyam was facing fierce competition, which would threaten its survival. The situation would affect the employees who relied on the company’s salary for food. However, falsifying the records is not legal. I would ask several questions in order to overcome the current dilemma. The queries should center on the costs and benefits of falsifying the accounting records and the longevity of the business amid the fierce competition. Besides, I could ask how obeying the law detrimentally affected the stakeholders.
Question 3
Companies can achieve their profit goals while embracing corporate social responsibility. The goal is attained when organizations have a broader view of the CSR beyond compliance and philanthropy. An organization should address environmental, social, and economic impacts. Corporations should be accountable to suppliers, clients, workers, and shareholders. CSR can enhance the reputation of the firm, which can result in increased sales and employee loyalty. In furtherance, a firm can improve efficiencies and reduce costs if it focuses on the sustainability aspects. The goodwill associated with CSR can create consumer loyalty and differentiate the company from competitors. Nevertheless, firms should be judicious when choosing the form and the extent of their social responsibility. The activities should not substantially reduce stock to the extent that the firm lowers the wages of the workers. The corporation should identify the aspects of CSR that align with its strategy, operations, and products.
Some firms that are doing well in terms of environmental and social contributions include Microsoft, Walt Disney, and Starbucks. Walt Disney collaborates with several organizations to support kids with critical illnesses, improve water conservation, and promote volunteerism. Starbucks has engaged in the provision of clean water and the production of environmentally-friendly packages. Microsoft is committed to social responsibility, such as human rights issues and education.
Question 4
Ethical norms vary across nations and cultures. The Western and the non-Western countries my portray different ethical norms due to varying national cultures. For instance, the US portrays a pronounced ethic of autonomy, while Taiwan demonstrates the moral principle of a community (Jia &Krettenauer, 2017). Religions, such as Confucianism and Christianity, are aspects of culture that influence the moral practices of people differently. Attitudes towards various forms of business practices will vary across nations. The US is adversarial of child labor, but some countries consider the practice as normal and acceptable. As such, International organizations operating overseas should tailor their practices to the norms of foreign countries.
Regulatory bodies affect businesses in various ways. Federal laws may define a base area, such as the minimum wage, which guides business practices. Regulatory bodies may define the set of requirements and responsibilities for business firms. For instance, EPA controls the concentrations or levels of pollutants that companies release to water, air, and land. EEOC provides laws that prohibit discrimination in the workplace. As such, the agency ensures that the company’s practice and emissions observe environmental and human health requirements. Overall, regulatory bodies define the expectations of business firms.
Question 5
The Board of Directors (BOD), audit committees, and auditors play a pivotal role in the oversight of financial reporting. The committee reports to the BOD regarding audit plans, results, and other essential items. The group reviews the financial statements to ensure that they are accurate and complete. The collaborative action of the group oversees the internal controls of the organization and the compliance with laws. The committee, together with the external auditors, appraises the audit results to determine their accuracy.
The current Satyam group should have taken several measures to prevent the scandal. The BOD should have ensured transparency in Satyam Computers, by ensuring that the financial statements and disclosures reflected the true picture. The external auditor, PwC, should have embraced a thorough appraisal of the Satyam’s reports. One failure of PwC comprised using the Satyam’s standards instead of their own testing tools. The auditors should have checked whether the cash in hand was available when the Chairman reported huge liquid money of Rs. 5040 crore. The auditor should have physically verified the assets that the company owned. PwC failed to perform the audit despite the huge sum that Satyam reported. The BOD failed to question the decision of the management to invest 1.6 billion US dollars in acquiring the real-estate businesses, which Chairman Raju’s son promoted (Bhasin, 2013). The BOD should have been active in reviewing the financial reports and questioning the actions taken by Chairman Raju.
References
Bhasin, M. L. (2013). Corporate accounting fraud: A case study of Satyam Computers Limited. Open Journal of Accounting, 2, 26-38.
Jia, F., & Krettenauer, T. (2017). Recognizing moral identity as a cultural construct. Frontiers in Psychology, 8, 412.