Accounting Fraud, Auditing and the Role of Government Sanctions in China

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2402330

Posted by Nureen CHAN Wan Wei, Year 4 undergrad at the School of Accountancy, Singapore Management University

The paper first highlights that China has a different legal landscape to the U.S.. Public enforcement in the form of government sanctions against audit firms is used in place of private enforcement (class action law suits in the West) to ensure high quality audits in China. Shareholder litigations are far and few, and rarely successful even when the government has imposed penalties on these auditors. This makes one question why did the Chinese government choose to deviate from the norm of allowing the free market to regulate audit firms? Continue reading

[Flashback] There’s No Accounting for China

http://www.reuters.com/article/2012/09/17/us-peregrine-wasendorf-idUSBRE88G16U20120917

Posted by Nureen CHAN Wan Wei, Year 4 undergrad at the School of Accountancy, Singapore Management University

U.S. regulators inadvertently raise a question about who’s to blame for investor losses.

In a ruling last week, an administrative trial judge at the U.S. Securities and Exchange Commission suspended the Chinese branches of the Big Four accounting firms from practicing at the SEC for six months. As a consequence, these accountants will not be able to sign off on the books of Chinese companies listed in the U.S., which could force the Chinese firms to delist at least temporarily for lack of audited accounts. The Big Four are appealing the ruling. Continue reading

Phosphagenics CEO vows to rebuild company’s reputation after it was embroiled in a $6 million accounting fraud conducted by former CEO Esra Ogru to fund her lifestyle and support her sick daughter

http://www.theage.com.au/business/phosphagenics-ceo-vows-to-rebuild-companys-reputation-20150114-12o5gn.html

http://www.theage.com.au/business/biotech-ceo-took-money-for-need-greed-20141009-113thh.html

“Her lawyer David Grace QC said some of the embezzled money went on lifestyle, including travel, jewellery and mortgage repayments. “In some way she felt…she deserved more in terms of remuneration and wanted a better lifestyle in a hurry,” he told the Victorian County Court on Thursday. But Mr Grace said her motivation changed in May 2008 with the birth of her daughter, who had a life-long condition stemming from a missing gene. “Prior (to May 2008) can be characterised as greed, (but) post, greed and need,” he said. Mr Grace said the family home was renovated to accommodate the daughter’s needs and a special wheelchair was bought. But he also said a lot of money was spent on funding the girl’s medical needs. He said his client’s daughter became the first human in the world to trial an experimental therapy developed on animals in Germany, which had to be administered daily, and said the treatment had led to the drug becoming a prescription medicine worldwide.”

Phosphagenics CEO vows to rebuild company’s reputation

January 14, 2015 – 5:37PM

Jessica Gardner

New Phosphagenics chief executive Ross Murdoch will seek partnerships with pharmaceutical giants and consider simplifying the company’s many and varied projects, but says one of his main jobs will be rebuilding the reputation of the embattled drug delivery developer.

The company has struggled to impress investors after it was embroiled in a $6 million fraud conducted by Dr Murdoch’s predecessor, Esra Ogru, and two other staff members, which was uncovered 18 months ago. Continue reading

When Heirs Become Major Shareholders: Evidence on Tunneling and Succession Through Related-Party Transactions

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2411412

When Heirs Become Major Shareholders: Evidence on Tunneling and Succession Through Related-Party Transactions

Sunwoo Hwang University of North Carolina (UNC) at Chapel Hill – Kenan-Flagler Business School

Woochan Kim Korea University Business School; European Corporate Governance Institute (ECGI); Asia Corporate Governance Institute (AICG)
March 19, 2014
ECGI – Finance Working Paper No. 413/2014
KDI School of Pub Policy & Management Paper No. 14-01

Abstract: 
In family firms, the succession of controlling equity stake to next generation is an issue of paramount importance. This, however, can be a major challenge in the presence of heavy inheritance or gift tax burden (high tax rate and absence of tax-saving vehicles, such as trusts or foundations) and in the absence of dual-class equity. Such regulatory environment may lead families to seek alternative ways of succession. As for families controlling business groups, one way of doing so is making use of related-party transactions among member firms. By favoring firms where the heir holds significant equity stake, the family can tunnel corporate resources to the heir. Eventually, the firm can grow large enough to acquire controlling equity stakes in other firms within the group. In this paper, we investigate this possibility using Korean chaebol firms during a sample period of 2000-2009. We identify firms where heirs become a major shareholder (treatment group) and compare them against their year-industry-size-matched firms (control group) before and after the ownership change. Difference-in-differences test with firm fixed effects reveal that treatment group firms experience greater related-party transactions, benefit from them in terms of earnings, pay out more dividends, and become more important in controlling other firms in the group.

Disentangling Chaebol Isn’t Easy: Hyundai Glovis Block Sale Fails

http://blogs.barrons.com/asiastocks/2015/01/12/disentangling-chaebol-isnt-easy-hyundai-glovis-block-sale-failed/?mod=BOL_hp_blog_astw

January 12, 2015, 11:48 P.M. ET

Disentangling Chaebol Isn’t Easy: Hyundai Glovis Block Sale Fails

By Shuli Ren

Chairman of Hyundai Motor Chung Mong-koo and its only son Chung Eui-sun failed to sellaround $1.25 billion of shares in the car group’s logistics arm Hyundai Glovis (086280.KW), despite a substantially discounted offer price. Continue reading

Here’s The Who’s Who In China’s Offshore Tax Havens

http://www.businessinsider.sg/chinas-offshore-money-circles-2015-1/

http://www.icij.org/offshore/leaked-records-reveal-offshore-holdings-chinas-elite

Here’s The Who’s Who In China’s Offshore Tax Havens

THE CENTER FOR PUBLIC INTEGRITY FINANCE  JAN. 14, 2015, 1:30 AM

Offshore

While Chinese officials aren’t required to disclose their assets publicly, citizens have remained largely in the dark about the parallel economy that can allow the powerful and well-connected to avoid taxes and keep their dealings secret. By some estimates, between $1 trillion and $4 trillion in untraced assets have left the country since 2000. Continue reading

Baby milk manufacturer Yashili International shares slide 6 pct on profit warning; “The sector is booming so it is ridiculous to say the sector is not doing well”

http://www.scmp.com/print/business/companies/article/1679520/baby-milk-manufacturer-yashili-international-shares-slide-6-pct

Baby milk manufacturer Yashili International shares slide 6 pct on profit warning

Wednesday, 14 January, 2015, 10:05am

Benjamin Robertsonbenjamin.robertson@scmp.com

Shares in baby milk powder manufacturer Yashili International dipped 6.1 per cent in early trading after the firm said it expected 2014 year end profits to fall about 40 per cent. The Guangdong based firm blamed a slowdown in the growth of the paediatric milk powder industry and said it was reforming its marketing and distribution models, according to a recent stock market filing. Continue reading

Kaisa default risks waking China property bears

http://www.ft.com/intl/cms/s/0/31f6073c-9af5-11e4-b651-00144feabdc0.html#axzz3OmGHjs2r

http://www.reuters.com/article/2015/01/13/us-kaisa-group-debt-bonds-idUSKBN0KM14320150113 

January 13, 2015 9:48 am

Kaisa default risks waking China property bears

Josh Noble in Hong Kong

For China’s property market bears, the default by a Hong Kong-listed developer on its US dollar bonds looks like the canary in the coal mine. More are likely to follow, they argue, as the great unravelling of the heavily indebted and chronically oversupplied sector finally gets under way. Continue reading

The Impact of IFRS Adoption on Real Activities Manipulation: Evidence from China

http://eds.a.ebscohost.com.libproxy.smu.edu.sg/ehost/pdfviewer/pdfviewer?sid=67e19e74-c373-4af4-8bac-cce11e6a7a64%40sessionmgr4001&vid=0&hid=4103

The Impact of IFRS Adoption on Real Activities Manipulation: Evidence from China.

Chan Lyu1 Yuen, Desmond C. Y.2 Xu Zhang2 Nini Zhang2

Journal of Applied Management Accounting Research. Summer2014, Vol. 12 Issue 2, p17-39. 23p. 1 Diagram, 9 Charts, 1 Graph.

Abstract:

This paper studies the relationship between IFRS adoption and real activities manipulation, and investigates whether IFRS reduces earnings management and improves the quality of accounting information. As China steps into the era of IFRS (International Financial Reporting Standard) adoption, it is important to focus on this issue and its implementation in such emerging markets. The paper finds that real earnings management is primarily driven by abnormal production costs, and that more companies manipulate earnings through operational transactions after IFRS adoption. Our findings suggest that real activities manipulation is positively related with IFRS implementation, and that such an association is stronger for real estate firms, especially in the case of abnormal cash flows of operations.

Does Mandatory IFRS Adoption Affect Crash Risk?

http://eds.a.ebscohost.com.libproxy.smu.edu.sg/ehost/pdfviewer/pdfviewer?sid=affa0588-3161-4ec3-a5c7-28593bf6a47a%40sessionmgr4001&vid=0&hid=4103

Does Mandatory IFRS Adoption Affect Crash Risk?

DeFond, Mark L.1 Mingyi Hung1,2 Siqi Li3 Yinghua Li4

Accounting Review. Jan2015, Vol. 90 Issue 1, p265-299. 35p. 5 Charts.

Abstract:

We test whether mandatory IFRS adoption affects firm-level ”crash risk,” defined as the frequency of extreme negative stock returns. We separately analyze nonfinancial firms and financial firms because IFRS is likely to affect their crash risk differently. We find that IFRS adoption decreases crash risk among nonfinancial firms, especially among firms in poor information environments and in countries where IFRS adoption results in larger and more credible changes to local GAAP. In contrast, IFRS adoption has no effect on crash risk for financial firms, on average, but decreases crash risk among firms less affected by IFRS’s fair value provisions, and increases crash risk among banks in countries with weak banking regulations. Overall, our results are consistent with the increased transparency from IFRS adoption broadly reducing crash risk among nonfinancial firms, but more selectively among financial firms, and with financial regulations playing a complementary role in implementing IFRS among financial firms.