Satyam versus Wirecard - A case study research on two accounting corporate scandals

Abstract

Many of the most well-known accounting scandals were associated to related party transactions (RPT) such as Enron, Wordcom or Parmalat. In general there are two contrasting views on RPT: they represent either conflicts of interest as they can violate against management’s agency responsibility to shareholders or supervisory board purpose of monitoring. This view is the conflict of interest hypothesis and can be derived from agency theory by Berle and Means (1932) and Jensen and Meckling (1976). The alternative view is the efficient transactions hypothesis, which assumes that RPT efficiently fulfill underlying economic needs of the company, as they represent possibilities to achieve lower refinancing costs. This article will apply case study research on two recent accounting scandals Satyam also known as the Indian Enron and Wirecard a German electronic payments giant involving RPT (Beerbaum et al., 2018). It is common requirement within international accounting standards with IFRS or US GAAP that RPT have to be adequately disclosed in the financial statements of the reporting entity. This should mitigate the conflict of interest hypothesis, as transparency improves oversight. Although IAS 24 is endorsed over two decades, a general observation in the literature is that these transactions are not properly disclosed in all instances (Mackenzie et al., 2014). IAS 1 demands to fully comply with all IFRS, which also relates to materiality. Related party transactions are very often prescribed by local requirements and listing. The conclusion on the cases is. While Satyam is very obviously reporting RPT with large increase, Wirecard is not transparent as RPT such as key related party loans from Wirecard to Management have not been disclosed in the annual statements, which is not in line with IAS 32. However, this is for an outside investor difficult to see, as those RPT are missing in the notes or in the Corporate Governance Report, which should have been raised as a finding from the auditor