Asian Financial Statement Analysis Detecting Financial Irregularities
Produktdetaljer
Biografisk notat
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.
"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, <i>The Asset</i><br /> <br /> "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, <i>The Asset<br /> <br /> </i>"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, <i>The Asset</i>
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.
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
Financial scandals and irregularities can occur globally, but most recently have begun a steady climb in Asia. Until now not much had been documented about these incidents, and there remains a significant lack of corporate governance in these markets. Asian Financial Statement Analysis: Detecting Financial Irregularities was created to address this knowledge gap while keeping the global investor in mind. Coauthored by two leading authorities in the field, it is the first ever in-depth study into detecting financial irregularities specifically in the international financial reporting of Asia-Pacific companies.
ChinHwee Tan is highly acclaimed by The Hedge Fund Journal and World Economic Forum and is the founding partner in Asia for a leading global alternative investor, among the largest in the world. Dr. Thomas R. Robinson is Managing Director of the Americas at the CFA Institute and has written and spoken extensively on the subject of financial statement analysis. Together they have created a practical guide for anyone looking to perform effective forensic analysis on the financial statements of Asian companies, generally for the purpose of making solid investment choices.
The first section of the book lays out a proven framework for detecting irregularities in profits, financial position, or cash flow. Its subsequent chapters illustrate the most common irregularities in the Asia-Pacific region and some of the warning signs to look for. Each chapter also includes a useful checklist of different analysis techniques, an overview of the most common games that companies play, and a full case study of an Asia-based company to help illustrate the concepts in a holistic manner. The authors' personal experiences in both global and Asian financial markets enrich the text and offer readers a firsthand look at real world scenarios, helping them further scrutinize companies within that same space.
Produktdetaljer
Biografisk notat
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.