What if accountants are no longer ‘reliable’?
Umar Saeed, Special to Financial Post | December 18, 2014 7:07 PM ET
A subtle word change in the IFRS accounting handbook could undermine the traditional role of accountants
The moral hazard is alive and well. Companies constantly look to paint a rosy picture of performance by using whatever discretion is available in the accounting handbook. Often, management benefits personally from good company results. We rely on accountants and auditors to provide a check on management. Empowered by accounting rules written with the moral hazard in mind, auditors are armed to push their clients’ optimism back into line. Society expects accountants to produce reliable information because lenders, investors and other stakeholders depend on the final numbers to make decisions. Debt covenants, regulatory requirements, management bonuses – are all separate contracts that depend on accounting numbers. So why then is the international accounting handbook being re-written to eliminate this decades-old check on the moral hazard? Continue reading
No quid pro quo
Controversy arises again over whether to give parol to business leaders in jail for fraud, corruption or other corporate malpractices. Minister of Justice Hwang Kyo-an first raised the issue by stating, “Corporate leaders are eligible for parole as long as they meet the requirements.” Then Choi Kyung-hwan, deputy prime minister for the economy and finance minister, joined the chorus by suggesting to President Park Geun-hye the need for special treatment of tycoons given their power to get the lackluster economy back on track. Kim Moo-sung, chairman of the ruling Saenuri Party, also leaped on the bandwagon by gleefully agreeing to the idea. The ruling party sooner or later plans to propose the paroles after discussing the issue in a Supreme Council meeting and consulting with the opposition New Politics Alliance for Democracy. Continue reading
Fujian Zhenyun Plastics Industry files for trading suspension on SGX
POSTED: 26 Dec 2014 21:22
The company’s shares have been on a trading halt since Tuesday (Dec 23). Market watchers say it is rare for companies to request for a conversion of trading halt to a suspension. SINGAPORE: China-based Fujian Zhenyun Plastics Industry has requested for a trading suspension of its shares on the Singapore Exchange. In a filing to the exchange on Friday (Dec 26), the company’s independent directors said the group “had encountered operational issues resulting in delays to the finalisation of the Group’s accounts”. As a result, its external auditor, Foo Kon Tan Grant Thornton LLP, was unable to proceed with its planned interim audit. The independent directors said they have initiated an internal inquiry into this matter. Continue reading
Ex-Daido execs sentenced for fraud
December 27, 2014 1:00 am
The Criminal Court yesterday sentenced three former Daido executives – former president Shisiro Fukuda, Pisan Jaraslertrangsi, a former vice president for finance and accounting, and Kanchanok (or Natchaporn Likitsirisap or Rassarin Surapattanapaisan, a former vice president for project management – for collusively falsifying documents and accounts and defrauding Daido assets. Continue reading
Pork Bellies and Public Company Audits: Have Audits Once Again Become Just Another Commodity?
Brant E. Christensen Texas A&M University – Department of Accounting
Thomas C. Omer University of Nebraska at Lincoln – School of Accountancy
Nathan Y. Sharp Texas A&M University – Department of Accounting
Marjorie K. Shelley University of Nebraska at Lincoln – School of Accountancy
September 5, 2014
Prior research has established that from 2000 to 2007, auditors incorporated clients’ financial reporting risk in their pricing of audit engagements (Charles et al. 2010; Doogar et al. 2010, 2013). However, regulators have expressed concern that the economic downturn and pressure from clients to reduce audit fees has had a negative impact on auditor effort. Our evidence suggests a marked decline in the pricing of financial reporting risk during the 2006-2010 period, further suggesting a reduced focus on the risk of misreporting during that period. This decline is particularly evident among non-industry expert auditors. Connecting these findings to audit quality, we observe a higher likelihood of subsequent accounting restatements among clients whose financial reporting risk appears to be insufficiently incorporated in audit fees, particularly among clients of small audit firm offices. Our results are consistent with a return to the commoditization of financial statement audits and its negative impact on audit quality.
When It Comes to CEOs, Equity and Press Releases, Timing Is Everything
Dec 23, 2014
Transparency is the cornerstone of corporate governance in the United States. Public companies must stick to a rigid schedule for reporting profits, losses and other financial data. And they must quickly disclose unscheduled events that current and potential shareholders will need to know about in order to assess the firm’s health and prospects.
It all seems quite simple.
But in practice, chief executives have some wiggle room: the power to choose just when to release certain types of information. New research by Wharton finance professor Alex Edmans and three colleagues shows that executives tend to use this flexibility to their advantage, releasing some types of information when it will boost the value of their own equity.
“When they expect to sell equity, they want the price to be high,” Twitter says Edmans, who is also a finance professor at the London Business School. Continue reading
An Analysis of ‘Little r’ Restatements
Christine E. L. Tan Fordham University Schools of Business
Susan M. Young Fordham University
November 1, 2014
Fordham University Schools of Business Research Paper No. 2407659
“Little r” restatements occur when a firm’s immaterial errors accumulate to a material error in a given year. Unlike “Big R” restatements, which must be reported through an SEC 8-K material event filing, little r restatements do not require an 8-K form or a withdrawal of the auditor opinion. This paper documents this previously unexamined form of restatement and analyzes the characteristics of the firms who have used this method of correcting accounting errors over the period 2009 through 2012. We find that approximately 12 percent of the companies in our total sample have little r restatements. Contrary to concerns voiced by regulators and research agencies, we find in univariate tests, that little r firms are generally more profitable, have lower leverage and stronger corporate governance than Big R firms and do not significantly differ from non-revising firms. We also find that the majority of these firms do not include any discussion of why these little r’s occurred. Policy implications related to disclosure are discussed.
SEC Nudges Companies on Cash Flows
Tammy Whitehouse | December 23, 2014
The Securities and Exchange Commission is calling on companies to tighten accounting procedures and controls pertaining to statement of cash flows, amid a steady rise in restatements associated with that rather nettlesome financial document. Continue reading
Nicholas Schorsch’s REIT empire is under siege
Schorsch’s future at RCAP is one of many issues confronting his vast real estate empire
By Bruce Kelly | December 21, 2014 – 12:01 am EST
It didn’t take long for Wall Street analysts to start calling for Nicholas Schorsch’s resignation from RCS Capital Corp. after a blockbuster lawsuit was filed last Thursday by a former accounting officer at a related firm claiming he told her to lie on the company’s financial statements. Continue reading
December 22, 2014 11:43 am
Hong Kong watchdog takes action against shortseller
Jennifer Hughes in Hong Kong
Citron Research has become the first shortseller to face action from Hong Kong’s watchdog, which alleges the California-based group knowingly made “false and misleading” claims about Evergrande, the Chinese developer. Continue reading