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Asian Financial Statement Analysis
Detecting Financial Irregularities
ChinHwee Tan (Author), Thomas R. Robinson (Author), Howard Schilit (Foreword by)
9781118486528, Wiley
Hardback, published 23 May 2014
208 pages
23.6 x 16 x 2 cm, 0.404 kg
"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
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: 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
Subject Areas: Finance & accounting [KF]
