GLG News(sm): Accounting & Financial Analysis

The Fed, The Economy, Accounting and Regulation - Changing Landscape for a New Century

Nitish Grover — Wed, 24 Jun 2009 14:24:23 EST

Banks, Insurance companies, Investment bankers, Hedge funds - they are all up against the wall facing new regulatory pressures. The Alan Greenspan era is over. Alan Greenspan was supposed to have a magic wand with which nothing went wrong. Its like Napoleon asking for a few lucky generals - Greenspan was one such in the financial world of today. Bernanke obviously is not. In this analysis I look at some of the aspects of the changing regulatory landscape.

Markets don't like Taxes

Amit Mittal — Mon, 22 Jun 2009 10:08:07 EST

The tax avoidance by Foreign invested companies in China is in fact something faced in equal measure by India(e.g. Vodafone) and also true for Offshore structures channeling spurious domestic investment back into the country. The lack of taxation benefits brings on real challenges to the valuations and the profit in a deal, however, the huge amounts of money involved would definitely help the starved economies in question. Tax benefits partaken by investors thru such means are increasingly being questioned because these inflows thru relevant taxation ensure participation of the government involved and bring relief to the local economy. Increasingly, one finds that tax shelters sold by KPMG, PWC, UBS and others are being questioned fairly and squarely for the lack of oversight and their dependence on local and international corruption. each such deal only increases more misconfidence in the market because of the noise on ethical practices and such practices are no longer recommended

Offshore Holding for Foreign Invested Enterprises may now be under China Tax Rules

Simon CHEUNG — Mon, 22 Jun 2009 00:19:53 EST

The mainland tax authority has delivered grim news. In early 2009, the China State Administration of Taxation has issued a few circulars to revise the existing rules governing foreign companies earning income from China. These circulars basically cover all types of income foreign companies may earn from China. It could be a foreign company having a working place in China and earning service income or a foreign company without any place or person in China but earning passive income such as dividend, interest, royalty, rental and capital gain from China. In particular, circular No. 3 and No. 19 set out detailed compliance and disclosure requirements. They include mandatory registration, periodic reporting, final reconciliation, etc. Failure to do any step may cause trouble in remitting money out of China.

MTM- Does Not Represent True & Fair Value

Swarn Khosla — Fri, 19 Jun 2009 16:35:15 EST

Mark To Market(MTM) basis for valuation of INVESTMENTS made by BANKS shall distort Balance Sheets and published accounts of the Banks, and may Strangulate Economic Growth, particularly in periods when GOWTH is needed. Financial Institutions\Investment Banks\Pension Funds and BANKS make longterm investments in shares/stocks/govt. securities for long term growth benefits. Requiring them by law to value these investments at MTM principles regularly at weekly/ monthly/quarterly/yearly intervals is just like calling upon their managements to become market participants like speculators/hedge funds/derivative operators or BROKERS in CDS. BANKS are trustees of PUBLIC DEPOSITS. This is the perception of the PUBLIC . Unfortunately some banks mixed up the domain of their operations because of poor regulation or deliberate oversight by the REGULATOS.The need of the hour is Strict Surveillance, not making rules that kill the GOOSE that laid the GOLDEN EGGS that is-BANKS, Institutions of ...

Accounting and Financial Risk in the Background of Declining Credit Availabilty

Nitish Grover — Tue, 16 Jun 2009 12:45:15 EST

The current situation of non availability of credit is leading to a position where Chief Risk Officers and CFO's will have a difficult time in funds management, meeting profitability targets and running a business. Funds constraints will make it difficult to extend credit to customers when financial institutions and creditors are making credit vanish. Such a situation may also lead to conditions where accounts may be stage managed simply to keep creditors at bay. In this analysis I look at the peculiar conditions which I expect to come to play in the coming years and suggest that better control systems need to be in place not just in organizations but also in the wide spread global capital village.

Cost of Capital - The Formula Which No Longer Makes Sense In A Changing World

Nitish Grover — Wed, 27 May 2009 23:11:03 EST

The financial world is changing and undergoing metamorphosis. Companies like GM and Chrysler are insolvent. Stock indices gyrate for no reason. Financial giants regularly go bust these days - so it seems. In this scenario what we have is a situation where the basic formulae for computing the cost of capital and such basics as beta and delta are becoming misleading. It is just not possible to calculate the systematic risk attached to a market or the unsystematic risk of a security. In this analysis I look at where this confusion is heading and how we may soon see a sea change in the way in which financial costs based on accounting statements are calculated.

Necessity, who is the mother of invention - Plato's promulgations on effective Internal Audit

Ferdinand Balfoort — Tue, 19 May 2009 12:21:06 EST

As economic conditions change, organizational priorities also require adjusting. By virtue of the Sarbanes Oxley Act (2002) (SOX), organizational resources, including internal auditors, have been heavily directed to what is essentially a legal compliance role, which is normally just one of the areas of internal audit focus. During the past 7 years organizations that needed to comply with SOX financial reporting requirements directed any competent internal audit and controls specialists to meet reporting deadlines to ensure a clean bill of health from external auditors, in order to avoid the opobrium resulting from any reported infractions. Some entities established dedicated internal controls functions to take care of the compliance efforts, while others simply directed the existing internal audit departments to take responsibility. In my opinion, this heavy emphasis on legal compliance resulted in a risky focus away from other key areas, contributing to the current economic ...

Internal Auditors: Generalists Asked to Perform Specialist Functions

Holly Miller — Mon, 18 May 2009 18:16:11 EST

Many companies are asking more of their internal auditors, particularly in with risk assessment and process improvement, and internal audit departments often lack expertise in those areas. Unfortunately, the article fails to address three key issues:1. Even when internal auditors possess process improvement, risk assessment or fraud detection skills, they often lack the industry or sub-industry expertise necessary to allow them to identify red flags or know best practices.2. Many firms have no internal audit function whatsoever, nor do they engage any external providers to assist with such reviews. This is particularly true in the hedge fund business, one of the leading industries to hit the headlines this year.3. Staff turnover with internal and external auditors increases the chances that risk points are missed.

Forensic Accounting - Fraud - A Perspective

Nitish Grover — Mon, 18 May 2009 10:05:10 EST

The referred article speaks of the increased levels of fraud by insiders in organizations across countries - especially those that are hit by recession. In this analysis I take a look at how this will impact forensic accounting and indepth audits. The role of the accountant and auditor will gain emphasis and management will have to take increased care to safeguard assets - the stewardship function.

Internal Audit - The Changing Face and Stimulus

Nitish Grover — Fri, 15 May 2009 08:39:12 EST

The face and scope of internal audit is changing. With time processes have always taken precedence over actual verification - except when a major fraud was discovered. The referred article speaks of the change now that the newness of Sarbannes Oxley is over and business is back to normal - atleast in terms of reduced major frauds. The article is however misleading because it relies to an excessive extent on statistics presented in a verbose form (which misleads) as compared to a tabular format (which is easier to read). In my analysis below I look at how and why internal audit is becoming increasingly relevant and all aspects are equally important.

China Replaces US as Brazil's Top Trading Partner: Bad News for Some Global Logistics Players

John Wilkerson — Thu, 14 May 2009 17:35:43 EST

Latest data from Brazil's development, industry and trade ministry (MDIC) confirm that China has replaced the US as Brazil's top export destination. Will this latest international trade trend help or hurt the global logistics market?

Keep Your Eyes and Ears Open

Kyle Martin — Wed, 13 May 2009 17:54:52 EST

Excellent article! The article is important as it correctly identified what most astute companies already know. Employee theft is on the rise as the economy takes a drip for the worst. As wallets tighten and income shrink employees will find creative ways to steal and or look for opportunities to save money. Many times employees rationalize and will justify taking office supplies or company product home as a barter exchange for services or due to the employee having taken a reduction in pay or accepted reduced hours.

slowing acceptance of IFRS by USA

Satinder Bhatia — Wed, 13 May 2009 08:51:04 EST

Accounting standards are meant to be followed and reviewed. It looks like adequate review of US GAAP did not take place in the last 20 years. In the meanwhile, the IASB was very active on this front and used the feedback from industry to revise the standards. And this process is still going on! No wonder, then that IFRS has been termed as a moving target. And this is the genesis - the FASB was concentrating on framing new standards; the IASB was concentrating on reframing previous standards to give more scope for flexibility and transparency in accounts.

Latin America with good forecasts of the International Monetary Fund

Daniel Vidal — Fri, 08 May 2009 09:02:22 EST

It seems after the international financial crisis the IMF has changed its vision for some Latin American countries.

Treasurers at the Helm - From Backroom to the Boardroom

Ferdinand Balfoort — Thu, 07 May 2009 09:53:45 EST

Treasurers used to rely on the accounting and finance department to provide the numbers to forecast cashflow requirements and generally accept these as given to determine their cashflow forecasts, liquidity requirements and risk. Today's Treasurer needs to be a Corporate Finance expert to ensure the figures provided are in fact reasonable and to ensure cashflow forecasts are accurate and complete. In fact, as the crisis bites deeper, they also need to assist their senior management team in identifying near-liquid assets that may be converted, as well as support the organization in identifying out of the box opportunities to tap into further lines of credit, and present the company to creditors and would be creditors in a professional and successful manner. Finally, as financial markets continue their roller coaster ride, and even respectable financial institutions are at risk of default, existing financial risk management responsibilities have become essential to corporate survival. ...

Is Liquidity Accounting the Future?

Daniel Pallat — Tue, 05 May 2009 23:13:52 EST

Current accounting standards are confusing and hard to understand by the average reader of financial statements. They don't present a picture of liquidity or an analysis of of cash needs and uses. Good businesses fail principally because they run out of cash, yet the traditional statement of cash flow doesn't accurately or clearly describe sources of cash and where it went. Nor does it indicate projected cash requirements and whether the company will be able to meet its cash needs. There must be a linkage between realistic sales and earnings forecasts and the bottom line result. Two analyses, therefore, are vital for an understanding of where a company is heading and whether it is reasonable to assume that it will get there. The first is cash basis forecasting, and the second is liquidity analysis. A monthly cash flow analysis for 12 months out is critical to determine the adequacy of internally generated cash flow versus the need to draw-down on existing debt availability.

The Price of Financial Innovation - Pitfalls in the Road

Nitish Grover — Thu, 30 Apr 2009 02:52:36 EST

The price of financial innovation can be like the ends of a pendulum. I would compare it to say research in medicine - except that there are no clinical trials for financial products. Just as thalidomide created major deaths/deformaties relating to the birth of children in the 1960's so CDO's without adequate testing have created mayhem in the first years of this century. I draw the parallel between thalidomide and CDO's because in both cases there was said to be great innovation without adequate backup research and testing. Bernanke in the referred article speaks of the good of financial innovation. I agree - but then clinical and proper testing of financial products is equally necessary for financial products. This is the emphasis of my analysis below.

Accounting - The Congruence - The Stumbles - A Look At Accounting Standards Development

Nitish Grover — Thu, 23 Apr 2009 11:39:25 EST

The present economic downturn has now got pundits and others saying that Accounting Standards are going to stumble - their will be no congruence on convergence of accounting standards. I would compare the present debate to that which took place when efforts were being made to salvage the gold standard in the first half of the last century. Then the intent was to keep the gold standard intact - it failed. The effort today is to keep national accounting standards in compartments - deny the concept of fair value - and generally keep accounting so complex that it is as difficult to understand as all the languages of the world - spoken simultaneously. In this analysis I look at why the development of accounting standards is going to continue and not going to be effected by the unnecessary arguments being floated in this context.

MSR risk in Stress test should be minimal

Thomas Rettinger — Tue, 14 Apr 2009 12:07:19 EST

Most large banks hedge their MSR positions creating an offset that would show up in scenario analysis, although Government intervention is hard to measure. The Natural Hedge needs to be considered.

Chinese Stimulus Package Will Result in Massive Bad Loans

William Gamble — Mon, 13 Apr 2009 12:10:36 EST

The Chinese government's stimulus package has resulted in three quarters of a trillion dollars worth of loans in the first quarter alone. The speed and destination of these loans will result in massive write off further weakening the Chinese financial system