Financial Statement Frauds in Indian Technology Sector

financial statement fraudsFinancial Statement Frauds in the Information technology sector are here to stay. In the year 2009, Indiaforensic published the research on termed as ” Early Warning Signals of Corporate Frauds” which identified that more than 1200 Indian listed companies could be indulging into financial statement frauds. Refer TOI Article here

Post this research, Indiaforensic also announced the Certification for the Information technology sector in forensic accounting, discussed the techniques of financial statement frauds in the Information technology sector.

This study material discussed the frauds comitted by the companies like DSQ Software, Satyam and manipulations by Educomp. Ambit Capital which released the report on IT sector speaks about the accounting tricks is interesting one. Here are 7 companies which needs attention of the investors according to the Ambit Research. Though some IT companies may consider it as problematic some may not find substance in the findings of the research.

  1. Geodesic – Manipulated the debtors to boost the revenues
  2. Educomp – Created the special purpose vehicle to transfer the receivables
  3. Financial Technologies – Apart from the NSEL fiasco, Financial Technology subsidiaries is found to be not presenting the consolidated financial statements boosting the standalone results of FT alone.
  4. Rolta India – Revaluation of the land coinciding with the change in depreciation policy is an attempt to boost the networth.
  5. Tech Mahindra – The company donot report the figures in US GAAPs may be a problematic area.
  6. Infosys – Corporate governance issue due to re-induction of N.R. Narayanmurthy on Infosys board along with the Rohan Murthy as the executive assistant.
  7. KPIT Cummins – The company excludes the income and expenses both from the revenues of the company boosting the margins by 50 basis points

It is important to understand these techniques in depth before taking the decision of the investments in the IT sector.