Ethics Violated

• Which ethical theory has been used to assess the case involved.
• How ethics have been violated

5.6. The Satyam Computer Services Case Satyam Computer Services, which was once ranked among the top three IT rms in India, boasted in early 2008 that the company had mastered U.S. GAAP accounting. \"We can say with condence that we carry out U.S. GAAP accounting as perfectly as any other global corporation ...We have to comply with Sarbanes Oxley (SOX) requirements well ahead of time\" (Reason, 2009). On the morning of Jan. 7, 2009, Ramalingam Raju, the chairman of troubled Indian IT outsourcing company Satyam Computer Services, sent a startling letter to his board and the Securities & Exchange Board of India. Raju acknowledged his culpability in hiding news that he had inated the amount of cash on the balance sheet of India's fourth-largest IT company by nearly $1 billion, incurred a liability of $253 million on funds arranged by him personally, and overstated Satyam's September 2008 quarterly revenues by 76% and prots by 97%. After submitting his resignation, Raju ended his letter by apologizing for his inability to close what began as a \"marginal gap between operating prots and the one reected in the books of accounts\" but which later grew unmanageable (Kripalani, 2009). Satyam was charged with fraud and was later bought by Mahindra & Mahindra Inc. Satyam has come to be known as the 'Enron of India.' This is a case that clearly qualies as deceptive accounting: unethical and fraudulent. Thus, earnings management occurs on a continuum, from savvy transaction timing, to aggressive accounting, to deceptive accounting. Savvy transaction timing is usually called 'income smoothing,' and its purpose is to make a smooth trend in earnings over time; investors like to see a continual upward grth in earnings. One method is called the 'cookie-jar reserves.' Management recognizes estimated expenses in a year when revenues are high, so fewer expenses are recognized in a quarter when earnings are lower. Another way to accomplish this goal is to defer revenues for 'tougher times.' Another technique used is called 'the big bath.' A company accelerates expenses and losses in a year with already poor results so that future income looks better and smoother (Silver, 2009)