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Introduction

This research report deals with various aspects of forensic accounting. Forensic

accounting is a new venture for expertise and a new field for Indian scholars. As with

increase of multinational companies, fraud is also increasing. And to unravel the fraud in

accounts and presenting it a substance of proof comes in action with this fraud and here

the forensic accounting comes in action. In this report Satyam scandal has been taken to

 present and understand forensic accounting. Various accounting errors that were found in

Satyam fraud and the way they were presented as a proof will help to understand the

concept very well.

In what became India’s biggest corporate scandal till date, Mr. Ramalinga Raju, founder 

and chairman of Satyam Computers Ltd., one of India’s four premier IT companies,

admitted of afraud through a letter addressed to the board of the company in January

2009.

The Fraud

• There was Rs. 5040 crores worth inflated cash and bank balance

•  Non-existent accrued interest of Rs. 376 crores

• Understated liability of Rs. 1230 crores

• Overstated debtor position of Rs. 490 crores

• Overstated Revenues & operating profit by Rs. 588 crores

Added together, it was a discrepancy of Rs. 7724 crores in the accounts for a company

havingannual revenues of Rs. 10,000 odd crores.Satyam’s share price crashed 77% to Rs.

40.25 on the news and the great story for a seeminglysuccessful Indian IT company

ended. Fingers were pointed, concerns were raised, complaintswere filed and dreams

were shattered.The government was quick to act, appointing a new board for Satyam

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which helped carry outbidding process for the IT giant and saved the company from

extinction. The Satyam fracas is one more fraud in the long history of misappropriation

of resources given in trust to individuals and institutions. What this entire episode brings

to the fore, is the following: Any control system is only as good as the people

administering it

Motivation

The forensic Accountant is a bloodhound of Bookkeeping. These bloodhounds sniff out

fraud and criminal transactions in bank, corporate entity or from any other organization’s

financial records. They hound for the conclusive evidences. External Auditors find out

the deliberate misstatements only but the Forensic Accountants find out the

misstatements deliberately. External auditors look at the numbers but the forensic

auditors look beyond the numbers.

Forensic accountant takes a more proactive, skeptical approach in examining the books of 

Accounting. They make no assumption of management integrity (if they can assume so

then there is no need for their appointment) show less concerns for the arithmetical

accuracy have nothing to do with the Accounting or Assurance standards but are keen in

exposing any possibility of fraud.

So by understanding the forensic accounting in simpler terms will help to understand its

effective use in Indian terminology by taking account of Satyam Fraud, its accountability

and presentibility .

This report will also make aware the future prospects of the Forensic Accounts as a new

era of professional demands to meet the supply of forensic accounts.

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Objectives

Main Objective

•Understand Forensic Accounting

• Relate effectiveness of Forensic Accounting in case of Satyam Fraud.

Sub Objectives

• To Study future prospects of forensic accounting

• To study in details about Satyam Fraud and applicability of Forensic Accounting

in various aspects.

 

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Research Problem

This study relates Forensic accounting use in Satyam case. As Satyam was one of the

 biggest scams in Indian History and Satyam was one of the major players in IT field, all

the financial statements are not published anywhere. only few financial statements can be

found on various publication. So my report restricts on those Financial statements only.

The period of and money evolved in research also limits my study. Forensic Accounting

is a very vast field also new to me and its presentibility as proof under various IPC

sections also limits my knowledge. So my research is based on very few statements and

my basic knowledge about various aspects, hence this report should not be considered as

a full trial of the scam.

Methodology of the project

 Methodology means various methods that were applied to get a final processed output.

 Basically the data was collected from various sources like publications books and 

internet which is secondary data for computations. So in this project Secondary data is

only considered for conclusion of my report. I think no questionnaire can be

 formulated for the topic as it is based on financial accounts and court trails. Case

 Study is used for study.

Case study research excels at bringing us to an understanding of a complex issue or 

object and can extend experience or add strength to what is already known through

 previous research. Case studies emphasize detailed contextual analysis of a limited

number of events or conditions and their relationships. Researchers have used the case

study research method for many years across a variety of disciplines. Social scientists, in

  particular, have made wide use of this qualitative research method to examine

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contemporary real-life situations and provide the basis for the application of ideas and

extension of methods. Researcher Robert K. Yin defines the case study research method

as an empirical inquiry that investigates a contemporary phenomenon within its real-life

context; when the boundaries between phenomenon and context are not clearly evident;

and in which multiple sources of evidence are used (Yin, 1984, p. 23).

This research explains how to use the case study method and then applies the method to

an example case study project designed to examine how forensic accounting was helpful

to make Satyam a Culprit The study examines the issue of whether or not the Forensic

Accounting is beneficial in some way to bring Multinational frauds in court.

Many well-known case study researchers such as Robert E. Stake, Helen Simons, and

Robert K. Yin have written about case study research and suggested techniques for 

organizing and conducting the research successfully. This introduction to case study

research draws upon their work and proposes six steps that were used:

• Determine and define the research questions

• Select the cases and determine data gathering and analysis techniques

• Prepare to collect the data

• Collect data in the field

• Evaluate and analyze the data

• Prepare the report

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Step 1. Determine and Define the Research Questions

The first step in case study research is to establish a firm research focus to which the

researcher can refer over the course of study of a complex phenomenon or object. The

researcher establishes the focus of the study by forming questions about the situation or 

 problem to be studied and determining a purpose for the study. The research object in a

case study is often a program, an entity, a person, or a group of people. Each object is

likely to be intricately connected to political, social, historical, and personal issues,

  providing wide ranging possibilities for questions and adding complexity to the case

study. The researcher investigates the object of the case study in depth using a variety of 

data gathering methods to produce evidence that leads to understanding of the case and

answers the research questions.

Case study research generally answers one or more questions which begin with "how" or 

"why." The questions are targeted to a limited number of events or conditions and their 

inter-relationships. To assist in targeting and formulating the questions, researchers

conduct a literature review. This review establishes what research has been previously

conducted and leads to refined, insightful questions about the problem. Careful definition

of the questions at the start pinpoints where to look for evidence and helps determine the

methods of analysis to be used in the study. The literature review, definition of the

 purpose of the case study, and early determination of the potential audience for the final

report guide how the study will be designed, conducted, and publicly reported.

Step 2. Select the Cases and Determine Data Gathering and Analysis Techniques

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During the design phase of case study research, the researcher determines what

approaches to use in selecting single or multiple real-life cases to examine in depth and

which instruments and data gathering approaches to use. When using multiple cases, each

case is treated as a single case. Each case s conclusions can then be used as information�  

contributing to the whole study, but each case remains a single case. Exemplary case

studies carefully select cases and carefully examine the choices available from among

many research tools available in order to increase the validity of the study. Careful

discrimination at the point of selection also helps erect boundaries around the case.

The researcher must determine whether to study cases which are unique in some way or 

cases which are considered typical and may also select cases to represent a variety of 

geographic regions, a variety of size parameters, or other parameters.

Step 3. Prepare to Collect the Data

Because case study research generates a large amount of data from multiple sources,

systematic organization of the data is important to prevent the researcher from becoming

overwhelmed by the amount of data and to prevent the researcher from losing sight of the

original research purpose and questions. Advance preparation assists in handling large

amounts of data in a documented and systematic fashion. Researchers prepare databases

to assist with categorizing, sorting, storing, and retrieving data for analysis.

4. Collect Data in the Field

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The researcher must collect and store multiple sources of evidence comprehensively and

systematically, in formats that can be referenced and sorted so that converging lines of 

inquiry and patterns can be uncovered. Researchers carefully observe the object of the

case study and identify causal factors associated with the observed phenomenon.

Renegotiation of arrangements with the objects of the study or addition of questions to

interviews may be necessary as the study progresses. Case study research is flexible, but

when changes are made, they are documented systematically.

When a pattern from one data type is corroborated by the evidence from another, the

finding is stronger. When evidence conflicts, deeper probing of the differences is

necessary to identify the cause or source of conflict. In all cases, the researcher treats the

evidence fairly to produce analytic conclusions answering the original "how" and "why"

research questions.

Step 6. Prepare the report

Exemplary case studies report the data in a way that transforms a complex issue into one

that can be understood, allowing the reader to question and examine the study and reach

an understanding independent of the researcher. The goal of the written report is to

 portray a complex problem in a way that conveys a vicarious experience to the reader.

Case studies present data in very publicly accessible ways and may lead the reader to

apply the experience in his or her own real-life situation. Researchers pay particular 

attention to displaying sufficient evidence to gain the reader s confidence that all�  

avenues have been explored, clearly communicating the boundaries of the case, and

giving special attention to conflicting propositions.

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Forensic Accounting

Forensic accounting or financial forensics is the specialty practice area

of accountancy that describes engagements that result from actual or anticipated disputes

or litigation. "Forensic" means "suitable for use in a court of law", and it is to that

standard and potential outcome that forensic accountants generally have to work.

Forensic accountants, also referred to as forensic auditors or investigative auditors, often

have to give expert evidence at the eventual trial. All of the larger accounting firms, as

well as many medium-sized and boutique firms, have specialist forensic accounting

departments. Within these groups, there may be further sub-specializations: some

forensic accountants may, for example, just specialize in insurance claims, personal 

injury claims , fraud,  construction, or royalty audits.

Forensic accounting students are studying for an exciting and challenging career: they

will someday be responsible for investigating and preventing financial fraud. While they

are still in school, they will be required to write research papers on forensic accounting.

Fortunately for them, their chosen field is rich in potential research topics.

The Failure of Statutory Audits

o Although companies are legally required to be audited in order to detect

financial fraud, audits do not always detect wrongdoing. The failure of 

internal and external audits has led to a greater need for forensic

accountants to investigate fraud. One topic that could be examined is why

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the statutory-audit system often fails to catch fraud, and how to improve it

 by improving forensic-accounting standards.

Mega-Fraud Detection

o  News reports on huge multinational corporations that engage in massive

fraud are sadly not uncommon. These swindles are usually on such a large

scale that it is impossible for only one person to be the perpetrator. Such

financial deceit is carried out by a team of people who have conspired to

commit it. Forensic accounting students could research what safeguards

are needed to catch wrong-doers before they cause irrevocable damage.

Country Case Studies

o For students who are interested in the global state of forensic accounting,

they might enjoy researching forepresentnsic-accounting standards in

other countries. For example, China or India could be case studies in

forensic accounting, especially when compared to the field in the US. In

addition, a student could compare two different countries outside of the

US, such as England and India. This type of report could provide insights

into forensic-accounting practices around the world.

The Rising Popularity of Forensic Accounting

o According to the The Journal of Forensic Accounting, there is anecdotal

evidence to show that the popularity of studying forensic accounting is

rising. Students could research whether this is true. And if true, what

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factors are causing students to enter this field? Another related research

topic is whether forensic accounting graduates are satisfied with the results

of their education, have they found employment, and if they have, has it

met their expectations?

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References

1. ^ Satyam ex-CFO Vadlamani Srinivas sent to judicial custody till

Jan 23

2. ^ Satyam scandal could be 'India's Enron' - World business-

msnbc.com (updated 11:42 a.m. ET Jan. 7, 2009)

3. ^ [1]

4. ^ Satyam scandal rattles confidence in accounting Big Four 

5. ^ ICAI to seek explanation from Satyam’s auditor PwC

6. ^ Satyam auditor says examining chairman's statement

7. ^ What happens to PWC, The Auditor For Satyam?

8. ^ Satyam: Auditors' body to pull up PwC ICAI to seek explanation

from Satyam’s auditor PwC

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Annexure

Balance sheet

Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Sources of funds

Owner's fund

Equity share capital 235.30 235.20 134.80 134.10 133.44

Share application money 1,230.40 1,230.50 1,230.40 1.83 7.85

Preference share capital - - - - -

Reserves & surplus 1,925.90 2,061.70 -657.10 7,221.71 5,648.07

Loan funds

Secured loans 31.50 42.00 641.00 23.67 13.79

Unsecured loans - - - - -

Total 3,423.10 3,569.40 1,349.10 7,381.31 5,803.15

Uses of funds

Fixed assets

Gross block 2,020.40 1,818.90 2,155.30 1,486.53 1,280.40

Less : revaluation reserve - - - - -

Less : accumulated

depreciation 1,406.70 1,285.90 1,404.40 1,062.04 930.45

 Net block 613.70 533.00 750.90 424.49 349.95

Capital work-in-progress 268.30 373.00 389.50 458.63 290.05

Investments 532.10 726.60 93.00 493.80 201.15

Net current assets

Current assets, loans &

advances 4,519.10 3,793.30 2,614.70 7,451.13 6,003.75

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Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Less : current liabilities &

 provisions 2,510.10 1,856.50 2,499.00 1,446.74 1,041.75

Total net current assets 2,009.00 1,936.80 115.70 6,004.39 4,962.00

Miscellaneous expenses not

written - - - - -

Total 3,423.10 3,569.40 1,349.10 7,381.31 5,803.15

Notes:

Book value of unquoted

investments 532.10 726.60 93.00 493.80 201.15

Market value of quoted

investments - - - - -

Contingent liabilities 1,365.80 1,581.00 2,350.73 623.28 267.20

 Number of equity

sharesoutstanding (Lacs) 11765.66 11761.86 6738.95 6704.79 6671.96

Profit loss account

Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Income

Operating income 4,780.80 5,107.60 8,432.50 8,137.28 6,228.47

Expenses

Material consumed - 1.00 154.90 - -

Manufacturing expenses 79.10 224.30 589.80 83.79 69.35

Personnel expenses 3,292.00 3,731.00 5,592.70 4,964.84 3,692.92

Selling expenses 105.60 61.00 117.30 87.51 62.87

Adminstrative expenses 823.70 899.20 2,142.50 1,170.83 873.42

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Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07

Expenses capitalised - - - - -

Cost of sales 4,300.40 4,916.50 8,597.20 6,306.97 4,698.56

Operating profit 480.40 191.10 -164.70 1,830.31 1,529.91

Other recurring income 149.20 69.20 10.60 277.87 168.07

Adjusted PBDIT 629.60 260.30 -154.10 2,108.18 1,697.98

Financial expenses 9.20 25.40 39.00 5.94 7.61

Depreciation 149.90 190.80 297.20 137.94 129.89

Other write offs - - - - -

Adjusted PBT 470.50 44.10 -490.30 1,964.30 1,560.48

Tax charges 53.70 16.20 150.70 226.12 150.00

Adjusted PAT 416.80 27.90 -641.00 1,738.18 1,410.48

 Non recurring items -584.10 -99.10 -1,073.80 -22.44 12.75

Other non cash adjustments 39.70 - -6,221.20 - -

Reported net profit -127.60 -71.20 -7,936.00 1,715.74 1,423.23

Earnigs before

appropriation -2,462.20 -2,334.60 -2,818.30 5,564.06 4,260.04

Equity dividend - - 67.40 234.89 231.85

Preference dividend - - - - -

Dividend tax - - 11.40 39.86 37.55

Retained earnings -2,462.20 -2,334.60 -2,897.10 5,289.31 3,990.64

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Cash flow

Mar ' 11 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05

Profit before tax -73.90 1,941.86 1,573.23 1,332.76 767.12

 Net cashflow-operating activity -177.20 1,412.92 1,029.83 785.61 643.96

 Net cash used in investing

activity 375.50 -641.22 -1,678.58 -53.85 -341.18

 Netcash used in fin. activity -19.70 -227.79 34.10 -43.94 -103.57

 Net inc/dec in cash andequivlnt 178.60 501.86 -605.42 689.02 193.90

Cash and equivalnt begin of 

year 253.00 651.41 1,256.83 567.81 373.90

Cash and equivalnt end of year 431.60 1,153.27 651.41 1,256.83 567.81