There Are Many More Satyams Out There

No doubt, authorities in India will pursue fraud and misappropriation charges against Satyam Computer (SAY) Chairman Ramalinga Raju. However, US investors need to be more concerned about the real possibility that disclosure documents filed by a fair proportion of emerging market listings, traded in the US or on domestic exchanges, are providing hopelessly inadequate (and misleading) trading guidance.

Satyam’s auditors, PricewaterhouseCooper, is maintaining a stoic silence in the face of widespread public demands for an explanation of how Satyam was allowed to create $1.30 billion in “fictitious” cash on its balance sheet. But, in these recessionary conditions, it is not difficult to figure out how and why financial statements can be manipulated. “Raju was trying to catch the tiger with bare hands,” a Far East agent of Satyam said shortly after the news of the scandal broke. “He was hoping that positive changes in the business environment will convert artificial cash into real cash.”

For those unfamiliar with the intricacies of accounting, this is how the fictitious-cash exercise works: keep asset valuations at inflated levels, be creative in cash-flow (and earnings) recognition methodologies, diminish the true extent of doubtful loans and receivables, and stretch payables out as far as possible. Reads like an extract from an internal memo issued by one of Wall Street’s bailout candidates?

In the wake of the Satyam story, a Franklin Templeton Investments spokesman said that “Satyam is only a short-term negative which, with more regulatory oversight, could turn out into a long-term positive.” The head of Indian equities at Hong Kong-based Mirae Asset Global Investment, Rahul Chadha, reiterated that India remained attractive “primarily on account of quality of management and robust business model.”

But before investors buy into such positivity, they need to be aware of two relevant facts. Firstly, given that the Indian economy is in a phase of extended contraction, it a challenge to find any robust business model at all. Secondly, besides Satyam, there are hundreds of listed Indian companies who are walking that fine line between fictitious cash and hard cash.

Furthermore, Mr. Raju’s deliberate balance-sheet structuring is not fancy-footwork restricted to India. Any number of public companies in Brazil, China, Russia, Turkey, Argentina and Indonesia (to cite a few key examples) are currently facing a similar “fictitious-against-real cash” dilemma. “You have to paint a rosy picture now, if only to keep creditors at bay,” a Mumbai stock broker helpfully suggested yesterday. Without doubt, as the global business climate deteriorates further through 2009, one can reasonably expect many more Satyams to surface.

So there is no need to be shocked by Satyam. Because as long as auditors fail to conduct extensive and precise reconciliations between cash-flow items within financial statements on one hand and contractual obligations which generate those items on the other, innovative managements will always find ways to create an aura of viability. While this is not the appropriate forum to detail other emerging market corporations whose balance sheets are highly suspect, Satyam serves only to reiterate this writer’s short call on emerging markets through exchange-traded funds (ADRE, BKF, EEM, EWX, FRN, PXR), despite the massive 2008 declines.

During an interview with Bloomberg on Thursday, Marshall Mays, director of Emerging Alpha Asset Management, bluntly declared that “all companies lie on earnings.” That is probably the truth, a business reality. The question is, “By how much?”

Well, the more depressing the underlying economic environment, the more is the incentive to lie, fudge, exaggerate and mislead; particularly when, like the rating agencies, even giant auditing firms are unable to perform the most basic of time-honoured due diligence tests. Despite what Indian cabinet ministers are saying, the Satyam problem is not one of lack of regulation. And, before advocating more regulation, lawmakers everywhere (including Washington) are well-advised to put in place credible mechanisms to ensure that auditors and lawyers in the money centres of the world don’t simply sign off on corporate documents, collect hefty fees and then leave investors to find their own way through the maze of dubious financial data.

Disclosure: Author holds a short position in EEM

Comments

[Alan Young:]

Yes, but why call this an Emerging Markets phenomenon? Have we learned nothing from Enron, Lehman, AIG?

Jan 09 09:20 AM

[H.J. Huneycutt:]

I am in agreement with the author, but if the author is around, I was wondering if he could provide some insight as to why this is so much more of a concern in emerging markets than somewhere like the US or the UK (for instance)? Is there some reason that auditors do not pick up this type of thing over there? Is collusion more likely? Are auditors in emerging markets simply more likely to give the benefit of the doubt to the company?

I agree, I'd definitely keep away from India right now, and I'd be very skeptical of other emerging markets (particularly Russia), but I wish I had more info as to why seems so much easier to do in emerging markets.

Jan 09 09:48 AM

[User 86999:]

"Because as long as auditors fail to conduct extensive and precise reconciliations between cash-flow items within financial statements on one hand and contractual obligations which generate those items on the other, innovative managements will always find ways to create an aura of viability."

Yes, indeed. This is an equivalent of credit rating agencies, which have no fear of being accountable, because they grease the right wheels in the entire chain! Good luck with finding a respectable system. The common man/woman will be screwed until they bleed.

Jan 09 09:57 AM

[PROXIMO:]

Obviously the author's article went over your head like American Airlines. If you had taken the time to do five minutes worth of research on SA you would know the author has a negative view of many world markets at this time, especially the USA. Maybe the next time you decide to post your ignorant comments you will either do some research first, or even better, since you run a 115 year old health care firm (that pays dividends!) you make have access to some medical professionals who can transplant a brain into your head.


On Jan 09 10:22 AM amruth1 wrote:

> I run a 115 year old publicly traded Indian health care company and
> I am proud of the fact that we have been giving dividends since 1936(
> when we did our listing). This has to say something about corporate
> governance!
> We are one of numerous Indian companies that do a honest days work
> and take care of all our stakeholders. For this author to say most
> emerging market companies have transparancy issues reeks of prejudice(
> and going by his name which is Indian makes this more of a Uncle
> Tom syndrome) . Are we all forgetting the Enrons, World Coms and
> the Maddoffs of the world? Seriously, seekingalpha should be careful
> about who they allow to write.
> Lot of people unfortunately read this sort of garbage and believe
> it to be true.

Jan 09 10:55 AM

[H.J. Huneycutt:]

I think people that fool themselves into believing it's just as safe to invest in India or Russia simply because of Enron, WorldCom, and Madoff are doing themselves a disservice and ignoring the details behind these various scandals. The US has some regulatory oversight issues, no doubt. Those issues look fairly tame compared to the issues in some of the emerging markets.

When you compare the nature of the scandals: Satyam versus Enron, Satyam versus Madoff, etc. --- I find myself much more frightened by Satyam. We're talking about a $1.3 ficticious cash balance that was built up over the course of several years time and never seemed to attract the attention of auditors (either that, or the auditors were in collusion with Satyam). When you get down to it, most of the US accounting scandals have to do with very complex schemes dealing with difficult-to-understan... or difficult-to-price assets and companies finding very clever ways to fool auditors based on complexities. I'm not seeing evidence that this happened with Satyam. To be short that much cash is almost dumbfounding!

Madoff, indeed, was even worse than Satyam, but you also have to put it in context. Madoff ran a private investment firm. American regulation of the hedge fund industry is/was particularly weak, which was one of the reasons he was able to skirt the law for so long. Also, another important point here is that Madoff was not a publicly-traded company! Publicly traded companies in the US are subject to much more stringent regulatory and financial reporting standards. Madoff could've never gotten away with what he did if he had been audited by a Big 4 firm. Instead, being a private investment firm, he decided to be audited by a 3-person accounting firm that wasn't even registered to do audits. if he had to file a 10-K with the SEC, that would've sent off a red flag immediately to anyone reading the report.

So sure, on the face of it, one thinks, "hey there are scandals in America, too, and this is no different!" But it does look a bit different from my perspective. It leads one to belief that it might be possible to run a ponzi scheme like Madoff all the while being a publicly-traded company theoretically subjected to tougher auditing and accounting standards that are applicable to publicly traded companies in the United States.

Jan 09 11:25 AM

[KCP:]

Wow Mr. Saxena!!! You are a fraudster as well. You AH short emerging markets and then write about this!!! Of course, you are negative - manipulating idiots - there is no difference between you and Raju or Madoff - all are vultures. Publish this if you truly believe you are sincere.

Jan 09 11:27 AM

[Rakesh Saxena:]

Dear H.J. Huneycutt: it is more than obvious that financial fraud can occur in all markets, both developed and undeveloped. The real benchmark test (in terms of a distinction) is the quality of regulatory and accounting guidelines. In the briefest of terms, the requisite disclosure level is much less in the emerging markets, and therefore companies can get by for years with financial statements (particularly in delinquency ratios and asset values) which don't meet western standards. Of course, fraud can occur with both benchmark tests----but the life of a fraudulent balance sheet (rather a series of balance sheets) is much less in the West than in the developing world. I trust that answers your concern. Just post further if you want specific examples and I can guide you to the relevant websites. Many thanks - Rakesh


On Jan 09 09:48 AM H.J. Huneycutt wrote:

> I am in agreement with the author, but if the author is around, I
> was wondering if he could provide some insight as to why this is
> so much more of a concern in emerging markets than somewhere like
> the US or the UK (for instance)? Is there some reason that auditors
> do not pick up this type of thing over there? Is collusion more likely?
> Are auditors in emerging markets simply more likely to give the benefit
> of the doubt to the company?
>
> I agree, I'd definitely keep away from India right now, and I'd be
> very skeptical of other emerging markets (particularly Russia), but
> I wish I had more info as to why seems so much easier to do in emerging
> markets.

Jan 09 01:12 PM

[Rakesh Saxena:]

Well KCP--it is this site's policy to disclose positions. You are, however, entitled to your opinions; I only wish they were supported by facts. Many thanks - Rakesh


On Jan 09 11:27 AM KCP wrote:

> Wow Mr. Saxena!!! You are a fraudster as well. You AH short emerging
> markets and then write about this!!! Of course, you are negative
> - manipulating idiots - there is no difference between you and Raju
> or Madoff - all are vultures. Publish this if you truly believe you
> are sincere.

Jan 09 01:14 PM

[Rakesh Saxena:]

Dear amruth1: Please review Proximo's post (above) which is self explanatory. The fact that my "name is Indian" does not mean that I have to advocate buying into India. My exclusive commitment is to trade markets for profit--and if my interpretation of the facts is wrong, I have to take losses. But I only deal with facts, and the related inferences one can draw from the facts. Many thanks - Rakesh


On Jan 09 10:22 AM amruth1 wrote:

> I run a 115 year old publicly traded Indian health care company and
> I am proud of the fact that we have been giving dividends since 1936(
> when we did our listing). This has to say something about corporate
> governance!
> We are one of numerous Indian companies that do a honest days work
> and take care of all our stakeholders. For this author to say most
> emerging market companies have transparancy issues reeks of prejudice(
> and going by his name which is Indian makes this more of a Uncle
> Tom syndrome) . Are we all forgetting the Enrons, World Coms and
> the Maddoffs of the world? Seriously, seekingalpha should be careful
> about who they allow to write.
> Lot of people unfortunately read this sort of garbage and believe
> it to be true.

Jan 09 01:19 PM

[Rakesh Saxena:]

Dear Aalan: You should review my older posts on the SA site. I share your view that the "phenomenon" is all-encompassing. Many thanks - Rakesh


On Jan 09 09:20 AM Aalan wrote:

> Yes, but why call this an Emerging Markets phenomenon? Have we learned
> nothing from Enron, Lehman, AIG?

Jan 09 01:20 PM

[Rakesh Saxena:]

Dear User 86999: The key indeed is real accounability--bit it a rating agency, a legal firm, an auditor or an asset valuation expert. Many thanks - Rakesh


On Jan 09 09:57 AM User 86999 wrote:

> "Because as long as auditors fail to conduct extensive and precise
> reconciliations between cash-flow items within financial statements
> on one hand and contractual obligations which generate those items
> on the other, innovative managements will always find ways to create
> an aura of viability."
>
> Yes, indeed. This is an equivalent of credit rating agencies, which
> have no fear of being accountable, because they grease the right
> wheels in the entire chain! Good luck with finding a respectable
> system. The common man/woman will be screwed until they bleed.

Jan 09 01:23 PM

[gjg49:]

Rakesh,
As a retired investment analyst with over 25 years of experience and as a retired manager of a tech fund, I think you understated the fraud involved at SAY.
I have always used cash flow as the ultimate measure--it is far far more difficult to cheat on cash flow than on the income statement (virtually everybody embellishes the P+L). But SAY was EXTREME. How could they possibly have made the two largest single items on their balance sheet (from the 20-F filed 8/8/2008 at sec.gov--cash and investments in bank deposits) look so much larger than they actually were. Your assertion that they finagled with accounts payable (only $32 million compared to $290 million in cash) seems unlikely--this suggests that they had cash because they didn't pay vendors $300 million but they somehow made the $300 million of payables disappear?? Maybe they withheld pay to their employees (at least accrued expenses shows as $238 million) but this still seems unlikely. And how could they possibly show investments in bank deposits at $826 million?? This dwarfs every other number on the balance sheet.
I don't mean this to be critical of you (or your article), but I do mean this to seriously question whether you are anywhere near explaining what happened at SAY. (PS I do not and did not have any economic interest in SAY, but having looked at the company, I have an intense intellectual interest in how they perpetrated this.)
I suspect that some parties at PWC probably were involved in a major way. I would be very interested in any info you have on that topic and how the big auditors interface with clients in developing countries.
Thanks

Jan 09 03:35 PM

[notsosmart:]

it seems difficult enough here in the usa to find the crooks & scoundrels(although there seems to be no shortage)so that putting your money in brics is very risky.are the scandinavian countries the most honest?

Jan 09 04:51 PM

[ap612:]

I would like to know what is making Author of this blog in being so sure in his comments like "..Secondly, besides Satyam, there are hundreds of listed Indian companies who are walking that fine line between fictitious cash and hard cash..."
And is it true just for India and emerging markets?

Jan 09 05:10 PM

[donzelion:]

"...Mr. Raju’s deliberate balance-sheet structuring is not fancy-footwork restricted to India. Any number of public companies in Brazil, China, Russia, Turkey, Argentina and Indonesia...are currently facing a similar “fictitious-against-re... cash” dilemma."

I would expect India to be relatively better than the other emerging markets. AIG, Enron, et. al., are small potatoes compared to China's lead/melanine and other corruption stories. Structurally, India has hundreds of thousands of skilled accountants who can speak English - a free press, and a legal system that actually reflects laws. That's more than one might say about several other emerging markets, which have nothing but momentum and hope'n'dreams driving their story.

Jan 09 05:35 PM

[DaveW:]

Another great article Rakesh, I appreciate your realistic take on the markets and the fact you do so well addressing reader's concerns, thanks.

Jan 09 06:09 PM

[Rakesh Saxena:]

Dear ap612: The Indian authorities, particulary securities regulators, are now going, starting Monday, to check the books of numerous companies who make up the market indices, as a first step---so let's wait for more news on this front in forthcoming days and weeks. My analysis is based on a thorough review of the balance sheets of about 2 dozen senior listed companies, including 3 banks. But I will let the results of the ongoing investigation play out, rather than naming names at this point. As far as your second question is concerned, this problem of inadequate accounting methodologies applies to all emerging markets, virtually without exception. The problem in the developed markets is somewhat different; in the US, for example, relatively superior accounting and reporting guidelines makes it more difficult (again, relatively) to defer a bad balance sheet process over an extended period of time--e.g. the problems at AIG and Lehmans were known to the regulators for quite some time, at least in the first quarter of 2008. Many thanks - Rakesh


On Jan 09 05:10 PM ap612 wrote:

> I would like to know what is making Author of this blog in being
> so sure in his comments like "..Secondly, besides Satyam, there are
> hundreds of listed Indian companies who are walking that fine line
> between fictitious cash and hard cash..."
> And is it true just for India and emerging markets?

Jan 10 11:36 AM

[Rakesh Saxena:]

Dear gjg49: In brief, what happened at Satyam was that the financial statements were "guided" to keep the stock price in play over an extended period of time---I suspect that Mr. Raju and his associates made money selling and buying SAY shares; my very reliable sources in Bombay tell me that this fact will be revealed as the inquiry progresses. On the one hand, inadequate accounting and disclosure guidelines made it easier to manipulate the balance sheet; on the other hand, the same manipulation kept the company's shares at unrealistic levels. So, to finally know "what really happened?", one must follow the money, i.e. trading in blocks of SAY shares, in India and abroad. Perhaps those lawyers in NY who have filed class action suits should see if they can get access to the major trading accounts. >>>Many thanks- Rakesh


On Jan 09 03:35 PM gjg49 wrote:

> Rakesh,
> As a retired investment analyst with over 25 years of experience
> and as a retired manager of a tech fund, I think you understated
> the fraud involved at SAY.
> I have always used cash flow as the ultimate measure--it is far far
> more difficult to cheat on cash flow than on the income statement
> (virtually everybody embellishes the P+L). But SAY was EXTREME. How
> could they possibly have made the two largest single items on their
> balance sheet (from the 20-F filed 8/8/2008 at sec.gov--cash and
> investments in bank deposits) look so much larger than they actually
> were. Your assertion that they finagled with accounts payable (only
> $32 million compared to $290 million in cash) seems unlikely--this
> suggests that they had cash because they didn't pay vendors $300
> million but they somehow made the $300 million of payables disappear??
> Maybe they withheld pay to their employees (at least accrued expenses
> shows as $238 million) but this still seems unlikely. And how could
> they possibly show investments in bank deposits at $826 million??
> This dwarfs every other number on the balance sheet.
> I don't mean this to be critical of you (or your article), but I
> do mean this to seriously question whether you are anywhere near
> explaining what happened at SAY. (PS I do not and did not have any
> economic interest in SAY, but having looked at the company, I have
> an intense intellectual interest in how they perpetrated this.)<br/>I
> suspect that some parties at PWC probably were involved in a major
> way. I would be very interested in any info you have on that topic
> and how the big auditors interface with clients in developing countries.
>
> Thanks

Jan 10 11:47 AM

[daveborn:]

Let me preface this by saying that this is not an apples-to-apples comparison, per se: take a look at Microstrategy (MSTR). I believe it was in late-2002 that it was found to have major account issues. In the subsequent two-or-so years, the company was able to regain its footing and regain some of the trust it'd lost; the stock price rebounded accordingly.

This is just what popped into my head when hearing of this Satyam mess.

Jan 10 04:04 PM

[Calling the...:]

Rakesh,
You still have not answered gjg49's main question which is what is bothering me (also, like gjg49, a securities analyst for long time) also. That is you can manipulate most everything on a financial statement - but how do you manipulate CASH?

Jan 10 04:13 PM

[Rakesh Saxena:]

Dear Calling the Turns: In reponse to your "main question", the key area to focus on is the current asset-current liability section of the financial statements. This may not be the right place to go into details but, in brief, one target of an investigation should be the "sundry debtors" and "loans and advances" lines to determine the extent of "rollovers", i.e. the rollover of fundamentally the same receivables, from one accounting period to another, often under different names on record, when in fact a segment of those rollovers are doubtful, at best. Another are of potential misrepresentation is the curtailment of current liabilities by simply "organizing" dates on PNs, BEs or other paper evidencing debt obligations. As far as "cash on hand/banks" is concerned, auditors need to investigate the source-process for balances--is the cash being generated from genuine business receivable realizations or is the cash (or a portion of it) simply a result of maturity mismatches, i.e. borrowing long, and placing the money in current accounts--this explanation should appear in the notes. Already, we just heard that the SEBI (India's securities regulator) is checking Satyam accounts in Citibank etc to verify this cash-on-hand situation, and more details will inevitably follow over the next few weeks. There is also the issue of overstating operating margins, which should be checked (by market standards) to see if the free cash levels disclosed are justified in the first place. The quantification of capital and reserves is yet another area of concern. Many thanks - Rakesh


On Jan 10 04:13 PM Calling the Turns wrote:

> Rakesh,
> You still have not answered gjg49's main question which is what is
> bothering me (also, like gjg49, a securities analyst for long time)
> also. That is you can manipulate most everything on a financial statement
> - but how do you manipulate CASH?

Jan 11 01:01 AM

[vivek bhauka:]

its the begining of the end for overleveraged and dubious companies.this world economic crises will take away with it some of the big business names across the globe.
its better to be on sidelines and wait for the storm to calm,rather than go investing.

Jan 11 03:11 AM

[punk_ash:]

yeah right, like all the cash reported in western companies is rock solid. Western companies are far more leveraged than the emerging markets (to unlock the shareholder value, LOL)

Jan 12 02:24 AM

[FX Maratha:]

Though Satyam is a big issue and there is potential for some other companies to be in similar position, the author's blanket statement about all emerging markets (and especially the contraction prediction about India) seem far fetched (almost like Cassandra!).

I didn't invest in India in 2005-08 and felt little stupid at having missed the chance, but now that the BSE has corrected by 50%+, I'm buying Indian market (through ETFs, MFs and Stocks) and I'll keep buying from now onwards.

For me, investing in India is not a 'nice-to-have' for my portfolio, but an essential for survival with developed countries economies slowing.

Attractiveness of India as a whole can be ignored for a case or two like Satyam at your own peril.

Jan 13 10:31 AM

[Jerusel:]

This article is pure silliness. American companies, consumers and monetary system are leveraged many times more than emerging markets. Emerging markets have a much higher savings rate and finance much of there investments with capital and not debt. Emerging markets do not have massive and expanding current account deficits like the US and the dollar is in a very real danger of losing its world reserve currency status, which would be absolutely devastating to US business. Our national debt is huge, our foreign debt financed consumer consumption is going to end when emerging markets figure out their not get paid back because we are going broke.

Short emerging markets if you want. Stay long on dollar dependent assets. Hope you have fun in the broke house.

Jan 22 08:35 PM

[Rakesh Saxena:]

Dear Jerusel: When you talk of American companies being leveraged, you perhaps are unaware of the heavy over-valuation of assets and extremely low delinquency provisions in the emerging markets. In any event, if you are serious, please pick an example and let's get into the facts. Just making broad comments will not do your portfolio much good. To reiterate, let's deal in facts first, then make conclusions. Many thanks - Rakesh


On Jan 22 08:35 PM Jerusel wrote:

> This article is pure silliness. American companies, consumers and
> monetary system are leveraged many times more than emerging markets.
> Emerging markets have a much higher savings rate and finance much
> of there investments with capital and not debt. Emerging markets
> do not have massive and expanding current account deficits like the
> US and the dollar is in a very real danger of losing its world reserve
> currency status, which would be absolutely devastating to US business.
> Our national debt is huge, our foreign debt financed consumer consumption
> is going to end when emerging markets figure out their not get paid
> back because we are going broke.
>
> Short emerging markets if you want. Stay long on dollar dependent
> assets. Hope you have fun in the broke house.

Jan 23 02:12 AM

[gjg49:]

two things:
first, leverage has absolutely NOTHING to do with the Satyam fraud. Balance sheet leverage derives only from debt (or perhaps off balance sheet debt) or contingent liabilities (contract leverage). Satyam had neither. (BTW AIG's leverage was contract leverage--large batches of CDSs that represented very low $ liabilities until suddenly one day they all kicked in and represented very high $ liabilities--kind of like an insurer who has no claims to pay until the day after a hurricane when they suddenly incur massive claims.) Again, from everything I have heard, Satyam had neither debt nor any contingent liabilities that suddenly exploded on them.
Second, Indian authorities arrested two of PWC's auditors on the Satyam account a couple of days ago.
Rakesh, with all due respect, you should consider taking an accounting course to insure that you better understand financial statements. The cash issue that I raised has nothing to do with leverage and it has nothing to do with some of the cash flow and operating margin items you suggest. Cash itself and the entire balance sheet represent snapshots of the financial condition at a given moment in time--say 11:59 PM on December 31. At that moment, Satyam either had $x of cash in such-and-such a bank or it did not. Similarly, either they owed someone or they did not. Valuing inventories and receivables and most other items can be open to negotiations (how much is last year's undeployed personal computer actually worth in inventory.) But cash should not be open to any interpretation. The value of a contingent liability may be--such as the AIG CDSs. Someone either never checked to see whether cash assets were real or someone actually helped management perpetrate this--the arrests seem to suggest the latter. "Cash flows" and operating margins both represent "flows" or movement of funds over periods of time--quarters or years, not balance sheet snapshots.

Jan 29 10:08 PM

[Rakesh Saxena:]

Dear gig49: You obviously have a very limited understanding of the terms "leverage" and "cash in hand and banks"---in any event, the last thing one needs is an accounting course at this point. In my view, it is the accountants who failed the public, in India and in the West, by sticking to concepts which are totally irrelevant and unduly restrictive (the "snapshot" trap). But I will address your concerns in more detail when another similar issue comes up. Many thanks - Rakesh


On Jan 29 10:08 PM gjg49 wrote:

> two things:
> first, leverage has absolutely NOTHING to do with the Satyam fraud.
> Balance sheet leverage derives only from debt (or perhaps off balance
> sheet debt) or contingent liabilities (contract leverage). Satyam
> had neither. (BTW AIG's leverage was contract leverage--large batches
> of CDSs that represented very low $ liabilities until suddenly one
> day they all kicked in and represented very high $ liabilities--kind
> of like an insurer who has no claims to pay until the day after a
> hurricane when they suddenly incur massive claims.) Again, from everything
> I have heard, Satyam had neither debt nor any contingent liabilities
> that suddenly exploded on them.
> Second, Indian authorities arrested two of PWC's auditors on the
> Satyam account a couple of days ago.
> Rakesh, with all due respect, you should consider taking an accounting
> course to insure that you better understand financial statements.
> The cash issue that I raised has nothing to do with leverage and
> it has nothing to do with some of the cash flow and operating margin
> items you suggest. Cash itself and the entire balance sheet represent
> snapshots of the financial condition at a given moment in time--say
> 11:59 PM on December 31. At that moment, Satyam either had $x of
> cash in such-and-such a bank or it did not. Similarly, either they
> owed someone or they did not. Valuing inventories and receivables
> and most other items can be open to negotiations (how much is last
> year's undeployed personal computer actually worth in inventory.)
> But cash should not be open to any interpretation. The value of a
> contingent liability may be--such as the AIG CDSs. Someone either
> never checked to see whether cash assets were real or someone actually
> helped management perpetrate this--the arrests seem to suggest the
> latter. "Cash flows" and operating margins both represent "flows"
> or movement of funds over periods of time--quarters or years, not
> balance sheet snapshots.

Jan 30 03:03 AM