[Flashback] Warren Buffett Does A Beautiful Job Of Explaining Dividends, And Why Berkshire Isn’t Paying One


Posted by CHEN Tiancheng , Year 4 undergrad at the School of Accountancy, Singapore Management University

Back in September 2011, Warren Buffett announced that Berkshire Hathaway would be buying back shares of the company.

At the time, some people went after Buffett for not offering a cash dividend. Continue reading


Corporate Ownership, Debt, and Expropriation: Evidence from China


Posted by Hannah YAP Qing, Year 4 undergrad at the School of Accountancy, Singapore Management University

Corporate Ownership, Debt, and Expropriation: Evidence from China

Yunxia Bai, Bing-Xuan Lin, Yaping Wang, Liansheng Wu Guanghua


We provide direct evidence on the dark side of leverage and offer new insights regarding the role of debt in corporate governance. Using a sample of Chinese state-owned enterprises that have experienced a transfer of controlling rights, we find a positive and significant relationship between expropriation and debt usage. Firms controlled by private block shareholders tend to have higher leverage due to excessive expropriation via debt. The evidence we document also suggests that in a weak legal environment, privatization alone will not resolve the agency problem faced by minority shareholders. On the contrary, the agency problem between the controlling shareholder and minority shareholders escalates after privatization.

Diamond Foods, Inc.: Anatomy and Motivations of Earnings Manipulation


Diamond Foods, Inc.: Anatomy and Motivations of Earnings Manipulation.

Gujarathi, Mahendra R.1,2

Issues in Accounting Education. Feb2015, Vol. 30 Issue 1, p47-69. 23p. 6 Charts, 3 Graphs.


Diamond Foods is America’s largest walnut processor specializing in processing, marketing, and distributing nuts and snack products. This real-world case presents financial reporting issues around the commodities cost shifting strategy used by Diamond’s management to falsify earnings. By delaying the recognition of a portion of the cost of walnuts acquired into later accounting periods, Diamond Foods materially underreported the cost of sales and overstated earnings in fiscal 2010 and 2011. The primary learning goal of the case is to help students understand the anatomy and motivations of earnings manipulation. Specifically, students will have the opportunity to (1) apply the FASB’s Conceptual Framework to a real-world context, (2) determine the nature of errors and compute their numerical effects on financial statements, (3) understand motivations for earnings management and actions needed for managing earnings of future years, (4) explain the anatomy of financial reporting fraud by reconstructing journal entries, (5) prepare comparative financial statements for retroactive restatements, (6) explain the rationale for clawback provisions in compensation contracts, and (7) understand the difference between the real and accrual-based earnings management.

[Flashback] Small business fraud and the trusted employee


Posted by GOH Shuqi, Year 3 undergrad at the School of Accountancy, Singapore Management University

Small businesses have it rough. They’re particularly vulnerable to fraud because they lack the resources to implement complete systems of internal controls and properly segregate accounting duties among their limited staffs. However, small businesses don’t have to be rife with fraud. Here are some viable prevention options. Continue reading

[Flashback] When auditors keep bad company


Posted by GOH Shuqi, Year 3 undergrad at the School of Accountancy, Singapore Management University

Lessons from NSEL, Satyam — managements should not appoint their own auditors.

When scams break out in the private sector, auditors, too, end up on the firing line, and rightly so. This was evident in the Enron scam in 2001, the Satyam scam in 2009 and the NSEL episode now. The massive Enron scam in the US, where future sales were booked as current, predictably took its toll on its auditor, Arthur Andersen. In the case of Satyam, the management booked fictitious sales in order to project financial and profit muscle that it did not possess. Its auditor, Price Waterhouse Coopers, got away with a rap on its knuckles.

Now, Financial Tech, the holding company of NSEL that has defaulted on paying a whopping Rs.5,500 crore to its investors is in the news — its auditor Deloitte has withdrawn its report pending revision. Withdrawing an audit report smacks of abdication of responsibility. Continue reading

China auditors settle with SEC for $2m


Posted by LE Hung, Year 4 undergrad at the School of Information System, Singapore Management University

The Chinese units of the Big Four global auditing firms agreed to pay $2m for failing to produce documents for companies being investigated for accounting fraud, sparing the auditors from a six-month work ban imposed by a US judge.

Continue reading