Month: February 2015

[Flashback] When auditors keep bad company

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http://www.thehindubusinessline.com/opinion/columns/s-murlidharan/when-auditors-keep-bad-company/article5190351.ece

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.

October 1, 2013:

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NSEL that has defaulted on paying a whopping Rs.5,500 crore to its investors is in the news — its auditor Deloitte has withdrawn its report pending revision.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

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http://www.ft.com/intl/cms/s/0/e1d13df2-ae1e-11e4-8d51-00144feab7de.html#axzz3R8KNP0iv

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 →

Another View: Tunneling to True Profit in China

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http://dealbook.nytimes.com/2009/08/17/another-view-shanghai-ed-profits/?_r=1

Posted by Valerie NG, Year 3 undergrad at the School of Accountancy, Singapore Management University

Another View: Tunneling to True Profit in China

AUGUST 17, 2009 10:00 AMAugust 17, 2009 10:00 am

Mark Dixon, a founder of the mergers and acquisitions adviser the1.com, which is active in mainland China, unwittingly unearthed some Chinese accounting tricks while valuing a local company.

What with the world still reeling from the domino effect that Lehman Brothers’ balance sheet had on financial markets, the exposure of accounting frauds like the one at the Madoff fund and the final throes of the expenses scandal in the British Parliament, a trip to China promised to be a breath of fresh air in this atmosphere of fishy finances. Continue reading →

Trading and earnings management: Evidence from China’s non-tradable share reform

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http://ac.els-cdn.com/S0929119915000140/1-s2.0-S0929119915000140-main.pdf?_tid=6d8b6b82-af6a-11e4-aefe-00000aacb35e&acdnat=1423383416_7c29f0f5118532277231da624c46ae5a

Journal of Corporate Finance Volume 31, April 2015, Pages 67–90

Trading and earnings management: Evidence from China’s non-tradable share reform

Gang Xiao, 

Highlights

  • China’s non-tradable share reform converted non-tradable shares to tradable.
  • Earnings management increases after the government enforced the reform.
  • Market participants respond less favorably to earnings surprises after the reform.
  • Trading by blockholders and insiders explains the rise in earnings management.

Abstract

This paper examines the effect of trading on earnings management under the setting of China’s non-tradable share reform. The government-enforced reform converted non-tradable shares to tradable and thus enabled blockholders and insiders to reduce holdings via public trading. We find significant increases in accruals among Chinese listed companies after the reform. The impact of the reform on earnings manipulations is increasing with the potential for share trading, the degree of information asymmetry and the intensity of stock selling by insiders and blockholders. Our findings support that trading by large shareholders and insiders significantly increases earnings manipulations.

Thinking Fast versus Thinking Slow: The Effect on Auditor Skepticism; Auditors are more likely to judge an asset as potentially impaired if they use their intuition as opposed to analytical processing

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http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2512329

Thinking Fast versus Thinking Slow: The Effect on Auditor Skepticism

Christopher J. Wolfe Texas A&M University – Department of Accounting

Brant E. Christensen Texas A&M University – Department of Accounting

Scott D. Vandervelde University of South Carolina – Darla Moore School of Business
October 20, 2014

Abstract: 
Based on psychology theory, we propose that intuition can be a key element stimulating auditor skepticism, whereas overreliance on analytical processing can overwhelm auditors’ intuition thereby reducing skepticism. We test our expectations with an experiment containing responses from 85 senior auditors. Our results support our theory. We find that auditors are more likely to judge an asset as potentially impaired if they use their intuition as opposed to analytical processing. When we categorize auditors on their innate use of intuition, our results become more pronounced. We find that auditors using analytical processing, who rarely use their intuition, seldom judge the asset as potentially impaired. Our research suggests that intuition can be of use to auditors, and when ignored, auditors can become less skeptical. These findings should help inform regulators, standard setters, and audit firms as they seek to enhance professional skepticism.

[Flashback] Good Apples, Bad Apples: Sorting Among Chinese Companies Traded in the US

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http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2024826

Posted by John SOH Yong Ye, Year 4 undergrad at the School of Economics, Singapore Management University

Abstract:

Committing financial fraud is a serious breach of business ethics. However, there are few large scale studies of financial fraud that involve ethical considerations. In this study, we investigate the pervasive financial scandals, which by the end of 2012 involved more than a third of the U.S.-listed Chinese companies. Based on a sample of 262 U.S.-listed Chinese companies, we analyze factors that differentiate between firms that commit financial fraud and those that do not. We find that firms more predisposed to unethical behavior, due to their low regional social trust in the home country and low respect for regulations and laws as proxied by political connections, are more likely to commit accounting and financial fraud. They take advantage of low hurdles for listing via reverse mergers and avoid third-party monitoring through poor governance and auditors. Finally, we find evidence after these scandals of non-fraudulent firms differentiating themselves from the fraudulent firms by sending costly signals such as insiders purchasing shares, increasing dividends, and going private.

China uncovers power abuses, nepotism at oil giant

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http://news.asiaone.com/news/asia/china-uncovers-power-abuses-nepotism-oil-giant

Posted by Joel CHUA Yong Sheng , Year 3 undergrad at the School of Business, Singapore Management University

BEIJING – China’s anti-corruption watchdog said on Saturday that it had uncovered evidence of graft at China Petrochemical Corp (Sinopec Group), warning the state-owned oil giant to take strong action to eradicate kickbacks, nepotism and theft.

Sinopec, the parent company of China Petroleum & Chemical Corp , must take steps to stop “power-for-money dealings” and prevent the loss of state assets, the Central Commission for Discipline Inspection (CCDI) said. Continue reading →

NVC Lighting says founder enters pledge deal without knowledge of board; Wang Donglei, who is now chairman of NVC, had alleged that founder Wu Changjiang embezzled about RMB573m

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http://www.scmp.com/print/business/china-business/article/1704557/nvc-lighting-says-founder-enters-pledge-deal-without

NVC Lighting says founder enters pledge deal without knowledge of board

Friday, 06 February, 2015, 4:53pm

Toh Han Shihhanshih.toh@scmp.com

NVC Lighting, one of China’s biggest lighting manufacturers, recently discovered its founder and former chief executive Wu Changjiang has made a pledge agreement of 23 million yuan (HK$29.2 million) without the knowledge of its board of directors, the Hong Kong-listed firm announced on Friday. “The board is not presently aware of a fair and reasonable justification for the purported entering into of the agreement, nor has the board been provided with a proper explanation by Mr. Wu which indicates that the agreement is in the interests of the company or its shareholders. The company is taking steps to obtain more details on the circumstances in which the agreement was entered into, and is obtaining legal advice to protect its interests,” said NVC.

Wu was dismissed last August 2014. Police in Huizhou formally registered a case of “money embezzlement by Wu and others” on October 22. NVC announced in November that hundreds of millions of yuan were withdrawn from the company’s bank accounts in Chongqing without the board’s permission in relation to loan pledges entered into by Wu. In December, mainland media reported that Wu was under criminal detention in Huizhou, Guangdong province. Wang Donglei, who is now chairman of NVC, had alleged that Wu embezzled about 400 million yuan from NVC’s bank accounts in the Chongqing branches of Industrial and Commercial Bank of China and China Minsheng Banking Corp, and an additional 173 million yuan from the Chongqing branch of Bank of China. Continue reading →

[Flashback] Firms eyeing growth in anti-fraud market

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business.asiaone.com/news/firms-eyeing-growth-anti-fraud-market

Posted by Eugene SAY Gui Hua , Year 4 undergrad at the School of Business, Singapore Management University

AS CORPORATE hacking becomes commonplace and regulators face no shortage of wayward companies to put under scrutiny, the cyber-security and anti-corruption business is growing fast.

The market for fraud investigation and dispute services in the Asia-Pacific region – including China but excluding Japan and India – is worth more than US$400 million (S$530 million) a year, estimates professional services firm Ernst & Young (EY). If compliance work were included, that number would rise dramatically. Continue reading →