Asian Financial Statement Analysis - Detecting Financial Irregularities

Gain a deeper understanding of Asian financial reporting and how to detect irregularities
 
The Asian region, and particularly China, is becoming a hotbed of investment activity. There have been quite a few accounting scandals in Asia in the recent years - now rivaling those we have seen in the Americas and Europe. Assessing potential or active overseas investments requires reliance on financial statements, the full parameters of which may vary from region to region. To effectively analyze statements, it is necessary to first understand the framework underlying these financial statements and then lay out a protocol for detecting irregularities. It's impossible to create and implement a practical plan without a deeper knowledge of the various factors at play.
 
Asian Statement Analysis: Detecting Financial Irregularities provides a framework for analysis that makes irregularities stand out. Authors Chin Hwee Tan and Thomas R. Robinson discuss international financial reporting standards, including characteristics particular to the Asian region. Tan and Robinson's combined background in academia and Asian finance give them a multi-modal perspective and position them as top authorities on the topic. In the book, they address issues such as:
* Detection of irregularities independent of particular accounting rules
* The most common irregularities in the Asian market
* Similarities and differences between U.S. and Asian accounting techniques
* An overarching framework for irregularity detection
 
The book uses real-world examples to illustrate the concepts presented, with the focus on Asian companies. As the first ever in-depth study on manipulation and irregularities in the Asian market, Asian Financial Statement Analysis: Detecting Financial Irregularities is uniquely positioned to be a valuable resource in the move toward the next phase of global reporting standards.

List of contents

Foreword xi
 
Genesis of This Book xiii
 
Acknowledgments xv
 
Introduction 1
 
Why Focus on Scandals in Asia? 2
 
How This Book is Organized 4
 
As You Begin 5
 
Notes 5
 
Chapter 1 A Framework for Evaluating Financial Irregularities 7
 
Articulation of Financial Statements 8
 
Accruals and Deferrals 12
 
Typical Accounting Games 13
 
Parting Comments 22
 
Note 22
 
References 22
 
Chapter 2 Detecting Overstated Earnings 23
 
Aggressive Revenue Recognition 24
 
Understatement or Deferral of Expenses 29
 
Classification of Non-Operating Income 31
 
Classification of Non-Operating Expenses 31
 
Parting Comments 32
 
Case Studies 33
 
Longtop Financial 33
 
Sino-Forest 37
 
Oriental Century 42
 
References 46
 
Chapter 3 Detecting Overstated Financial Position 47
 
Excluding Both Assets and Liabilities 49
 
Other Off-Balance-Sheet Financing/Liabilities 53
 
Overstating Assets 54
 
Parting Comments 59
 
Case Studies 60
 
RINO International Corp. 60
 
Olympus 66
 
Oceanus 69
 
Notes 72
 
References 72
 
Chapter 4 Detecting Earnings Management 73
 
Accruals and Deferrals Revisited 74
 
Accounts Receivable (Accrued Revenue) and the Allowance for Doubtful Accounts 75
 
Deferred (Unearned) Revenue 80
 
Accrued and Deferred (Prepaid) Expenses 80
 
Deferred Taxes 81
 
Contingencies and Reserves 86
 
Parting Comments 87
 
Case Studies 88
 
Harbin Electric 89
 
West China Cement 98
 
China Biotics 101
 
References 105
 
Chapter 5 Detecting Overstated Operating Cash Flows 107
 
Understanding the Cash Flow Statement 108
 
Using Cash Flow to Assess the Quality of Earnings 113
 
Cash Flow Games 116
 
Parting Comments 118
 
Case Studies 118
 
Renhe Commercial Holdings 118
 
Duoyuan Global Water 123
 
Winsway Coking Coal Holdings 131
 
References 136
 
Chapter 6 Evaluating Corporate Governance and Related-Party Issues 137
 
Board Governance and Independent Directors 138
 
Shareowner Rights 139
 
Interlocking Ownership or Directorships 140
 
Related-Party Transactions 140
 
Excessive Compensation 142
 
Personal Use or Expropriation of Assets 143
 
Lack of Transparency 143
 
Auditor Issues 143
 
Parting Comments 144
 
Case Studies 146
 
China Valves Tech 146
 
PUDA Coal 149
 
Sino-Environment Technology Group Limited 153
 
Note 157
 
References 157
 
Chapter 7 Summary and Guidance 159
 
Putting It All Together 160
 
A Recipe for Detecting Cooked Books 163
 
Parting Comments 168
 
Case Studies 168
 
Celltrion, Inc. 169
 
Real Gold Mining 170
 
Fibrechem Technologies Ltd. 175
 
References 177
 
About the Authors 179
 
Index 181

About the author

CHINHWEE TAN, CFA, CPA, is the founding partner in Asia for a leading global alternative investor, among the largest in the world. He is a pioneer in special situation investing in Asia and has a track record of investing in more than 100 deals. He was voted by The Hedge Fund Journal as one of the emerging top 40 absolute return investors globally and was also named as Best Asia Credit Hedge Fund manager by The Asset. He is the winner of the 2013 Distinguished Financial Industry Certified Professional (FICP) Award from the Singapore government. THOMAS R. ROBINSON, CFA, CPA, is Managing Director of the Americas at CFA Institute. Previously, Tom served as Managing Director of Education at CFA Institute, providing vision and leadership for a 100-member global team producing and delivering educational content for candidates, members, and other investment professionals. Prior to joining the CFA Institute, Tom had a 25-year career in financial services and education. Tom has published regularly in academic and professional journals and has authored or coauthored many books on financial analysis valuation and wealth management. Tom is a CFA charterholder, a Certified Public Accountant (CPA) (Ohio), a Certified Financial Planner (CFP^®), and a Chartered Alternative Investment Analyst (CAIA). He holds a bachelor's degree in economics from the University of Pennsylvania, and a master's and doctorate from Case Western Reserve University.

Summary

Gain a deeper understanding of Asian financial reporting and how to detect irregularities The Asian region, and particularly China, is becoming a hotbed of investment activity. There have been quite a few accounting scandals in Asia in the recent years now rivaling those we have seen in the Americas and Europe.

Report

"Written by Tan Chin Hwee, the founding partner in Asia for Apollo Global Management, a leading US$162 billion global alternative investor, among the top three largest in the world; and Tom Robinson, professor of accounting and head of education at the CFA Institute, the book offers a practical framework for performing forensic financial analysis and detecting accounting irregularities." - Daniel Yu, The Asset
"But what if investors were armed with practical tips on what to look for in assessing companies--espeically avoiding the dodgy ones (and maybe even profiting by taking a short sale position)? Here is where Asian Financial Statement Analysis: Detecting Financial Irregularities may become the seminal book that equips investors with what to look out for when assessing investment opportunities in Asia." - Daniel Yu, The Asset
"Tan and Robinson write that corporate governance has been the Achilles' heel for minority equity shareholders in Asia. Despite being publicly traded, they say that many companies are sitll effectively controlled by the founder or his family; there is nothing inherently wrong with this, but the real winners in many companies are not the minority shareholders. Investors in this region, therefore, will need to be extra vigilant and this book goes a long way in helping strengthen their position." - Daniel Yu, The Asset

Product details

• Authors: Thomas R Robinson, Thomas R. Robinson, Robinson Thomas R., Howard Mark Schilit, Tan, Ch Tan, Chin Tiong Tan, Chin Tiong Robinson Tan, ChinHwe Tan, Chinhwee Tan, Chinhwee Robinson Tan, Tan ChinHwee
• Assisted by: Howard Schilit (Foreword)
• Publisher: Wiley, John and Sons Ltd
• Languages: English
• Product format: Hardback
• Released: 23.05.2014
• EAN: 9781118486528
• ISBN: 978-1-118-48652-8
• No. of pages: 208
• Series: Wiley Finance; Wiley Finance Editions; The Wiley Finance Series; Wiley Finance; Wiley Finance Editions; The Wiley Finance Series
• Subjects: Social sciences, law, business > Business > Business administration; Kapitalanlage, Finance & Investments, Finanz- u. Anlagewesen, Kapitalanlagen u. Wertpapiere, Investments & Securities