How China’s Draft Rules May Affect Foreign Investors; Proposed Rules Target Structure Known as Variable Interest Entity

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http://www.wsj.com/articles/how-chinas-draft-rules-may-affect-foreign-investors-1422412416

Earlier postings: (1) Proposed Draft Legislation on VIE Structures (Link); (2) US SEC Cautions Companies on Consolidation Analyses Using VIE (Variable Interest Entity) (Link)

How China’s Draft Rules May Affect Foreign Investors; Proposed Rules Target Structure Known as Variable Interest Entity

GILLIAN WONG And JURO OSAWA

Jan. 27, 2015 9:33 p.m. ET

VIE

HONG KONG—China’s proposed new rules on foreign investment will help the Chinese government re-exert control over the flood of foreign money and interests coming into the country’s booming Internet industry. That is likely to be a boon for Alibaba Group Holding Ltd. and Chinese Internet companies like it, investors, executives and lawyers say. But for foreign shareholders of those companies as well as Western Internet firms trying to operate in China, the rules could be a double-edged sword, they say.

“The objective, as with everything the Chinese government does, is to maintain control,” said attorney Antony Dapiran, a Hong Kong-based partner at Davis Polk & Wardwell LLP who has advised the kinds of Chinese companies that would be affected by the new rules. Continue reading →

Special Purpose Vehicles: Empirical Evidence on Determinants and Earnings Management

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http://eds.a.ebscohost.com.libproxy.smu.edu.sg/ehost/pdfviewer/pdfviewer?sid=2ab3c412-cbcb-4194-a5c2-c9aed97a8fbd%40sessionmgr4001&vid=0&hid=4113

Special Purpose Vehicles: Empirical Evidence on Determinants and Earnings Management.

Mei Feng1 Gramlich, Jeffrey D.2 Gupta, Sanjay3

Accounting Review. Nov2009, Vol. 84 Issue 6, p1833-1876. 44p. 1 Diagram, 9 Charts, 1 Graph.

Abstract:

We investigate the use, determinants, and earnings effects of special purpose vehicles (SPVs). Based on a proxy of SPV activity that can be applied to a broad cross-section of firms over time, we find a two-and-a-half fold monotonic increase in the percentage of firms using at least one SPV during the eight-year period from 1997 through 2004. Tobit regressions of the determinants of SPV use show that SPV activity increases with financial reporting incentives and economic and tax motivations, but strong corporate governance tends to mitigate their use. In addition, the evidence is consistent with SPVs arranged for financial reporting purposes being associated with earnings management, whereas the same does not appear to be the case for SPVs set up mainly for economic, tax, and other reasons.

Earnings Management and Derivative Hedging with Fair Valuation: Evidence from the Effects of FAS 133

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Earnings Management and Derivative Hedging with Fair Valuation: Evidence from the Effects of FAS 133

Jongmoo Jay Choi Temple University – Department of Finance; Temple University; Temple University – International Business

Connie X. Mao Temple University – Fox School of Business and Management; Temple University – Department of Finance

Arun Upadhyay University of Nevada, Reno

October 21, 2014
The Accounting Review (Forthcoming)
Fox School of Business Research Paper No. 15-043

Abstract: 
Barton (2001) and Pincus and Rajgopal (2002) show that earnings management through discretionary accruals and derivative hedging are partial substitutes in smoothing earnings before 1999. In this study, we investigate whether FAS 133 regarding hedge accounting in 2000 has influenced the relative merit of the two earnings smoothing methods. Based on a sample of S&P 500 non-financial firms during 1996-2006, we find that the substitution relation between derivative hedging and discretionary accrual is significantly attenuated after FAS 133 implementation. We also document a significant increase in earnings volatility associated with derivative hedging post-FAS 133. These results are robust to the use of various model and method specifications, as well as controlling for contemporaneous macroeconomic and regulatory shocks. Overall, our results suggest that a material change in an accounting rule regarding derivatives can influence the level and volatility of reported earnings, as well as the method of income smoothing.

[Flashback] Investors in gold buyback scheme alarmed by firm’s silence

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http://www.straitstimes.com/news/singapore/more-singapore-stories/story/investors-gold-buyback-scheme-alarmed-firms-silence-2015#sthash.Z6El58zh.dpuf

http://business.asiaone.com/news/investors-gold-scheme-alarmed-firms-silence

Posted by Terence CHUA Tong Liang, Year 4 undergrad at the School of Business, Singapore Management University

No word received since early January and owner is uncontactable, they say

More than 20 investors who put around $7 million into a gold buyback scheme run by local firm Suisse International are now worried that they cannot get their money back. Not only is its owner uncontactable, they said, but the company’s office at Keypoint in Beach Road has also been closed. The last message the investors received was from the firm’s vice-president, Ms Belinda Hah, in the first week of January. That was when she informed them via SMS that their money was stuck in a transfer to the firm’s Hong Kong branch – Suisse HK. No further details were given on how investors could get their money back. At least three of them have gone to the police, and engaged debt collection agency JMS Rogers to locate Ms Hah. Continue reading →

[Flashback] Citibank subsidiary accused of $73 million derivatives fraud by Korea’s Simmtech

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http://blog.thomsonreuters.com/index.php/citibank-subsidiary-accused-of-73-million-derivatives-fraud/

Posted by Padma LAU Heng Ee, Year 4 undergrad at the School of Business, Singapore Management University

Citibank subsidiary accused of $73 million derivatives fraud

A Korean subsidiary of Citibank allegedly induced a Korean company into a series of derivative contracts holding “enormous risk” that cost the company $73 million, a lawsuit filed in New York state court says.

21 AUG 2013Peter Hamner

Simmtech Co., a worldwide seller of circuit boards for semiconductors, filed suit in the New York County Supreme Court, saying Citibank Korea Inc. fraudulently sold it derivative contracts allegedly designed to hurt Simmtech and benefit Citibank. Continue reading →

For New Revenue-Recognition Rules, It’s Ready vs. Not

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http://www.wsj.com/articles/for-new-revenue-recognition-rules-its-ready-vs-not-1422316175

Earlier postings: Revenue Recognition Changes Could Spur SEC Fraud Probes (Link)

For New Revenue-Recognition Rules, It’s Ready vs. Not

Will Accounting Measure Take Effect as Scheduled? Some Companies Urge Delay

MAXWELL MURPHY

Updated Jan. 26, 2015 7:04 p.m. ET

Call it the $360 billion question: whether to delay one of the biggest accounting changes in decades. The answer isn’t expected until early in the second quarter. The sweeping revisions in revenue-recognition rules “will represent a change for many industries,” said Christine Klimek, a spokeswoman for the Financial Accounting Standards Board, after a joint meeting Monday with its international counterparts. “There are bound to be questions. The answers to most of those questions can be found within the standard itself.” The final draft of the new rules, unveiled last May after years of deliberations, would change the way thousands of companies book revenue. They would affect how auto makers account for car sales and telephone companies account for mobile-phone contracts. Continue reading →

Big Whistleblower Predictions for 2015

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http://blogs.wsj.com/riskandcompliance/2015/01/23/the-big-whistleblower-predictions-for-2015/?mod=wsj_rchome_rcreport

Posted by CHUA Sing Nee, Year 3 undergrad at the School of Social Science, Singapore Management University

About a year ago, we ran a post positing that 2014 would be huge for corporate whistleblowers on a number of fronts. The experts with whom we spoke then hit the nail on the head: every prediction came true. They were right about more Securities and Exchange Commission whistleblower awards arriving (including one for a record $30 million-plus), False Claims Act cases hitting a new record and courts further defining who counts as a whistleblower. Here what some whistleblower experts think may happen in the year ahead: Continue reading →

SEC Fines Company, Former Exec for FCPA Violations

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http://blogs.wsj.com/riskandcompliance/2015/01/22/sec-fines-tampa-company-executive-for-fcpa-violations/

Posted by CHUA Sing Nee, Year 3 undergrad at the School of Social Science, Singapore Management University

The Securities and Exchange Commission said Thursday it reached settlements with a Tampa, Fla.-based engineering firm and its subsidiary’s former president over allegations of bribery to secure Qatari government contracts. Continue reading →

Survival in the Asian Capital Jungle: Who Knows What When + Remembering Accounting Superhero Abraham Briloff (Week 1 of SMU Course Accounting Fraud in Asia)

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Dear Friends,

Survival in the Asian Capital Jungle: Who Knows What When – Remembering Accounting Superhero Abraham Briloff

BriloffDecember is an unrelenting month – December last year took away from the world an accounting superhero, Professor Abraham Briloff. Right up until about a month before his death on Dec 12 at age 96, Abe was unrelenting in alerting Barron’s about some accounting fraud he had uncovered that was hidden in corporate America’s financial statements – a lifelong endeavor he persisted for 45 years since his enlightening “Dirty Pooling” article on July 15, 1968. When financial crisis strikes, Abe’s words become the Generally Accepted Accounting Principles. Even though Abe was legally blind, he could see clearly the accounting issues, having memorized pages of the company’s financials that had been read to him by his daughter Leonore or his grad students at City University of New York’s Baruch College. When asked about his thought process, the grandmaster said, “It begins with some sensitivity as to where the problem might be. Somehow, there’s a serendipity where I know that there’s an issue out there.” Abe elaborates his Process in a Barron’s interview:

“The numbers reverberate in my mind, and then I turn to Leonore and say, ‘Get for me the data in these areas,’ or ‘Read such-and-such to me from whatever document you might find.’ He records his thoughts on tape, on one of the several recorders that he keeps on the desk in his study, and then he reflects further. When he goes to bed, the numbers still dance in his mind, and he keeps a tape recorder beside his bed. It is as if he can see the numbers, much as Beethoven could hear the melodies even though deaf. As new numbers come in, he incorporates them into his thinking, to confirm or reject his original hypothesis. “Something hits. You say, ‘Why is it there?’ Or something that should be there, isn’t there,” he says. He performs the most critical calculations in his head.”

Abe’s heroic commitment to exposing accounting frauds has been a source of inspiration for us when crafting out Accounting Fraud in Asia, an official course in the Singapore Management University (SMU) degree curriculum that will be launched in January 2015. Continue reading →

Tone Management

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http://eds.a.ebscohost.com.libproxy.smu.edu.sg/ehost/pdfviewer/pdfviewer?sid=5a545e25-fd28-4ab9-92b8-4c1ca45e8578%40sessionmgr4001&vid=4&hid=4105

Tone Management.

Xuan Huang1 Siew Hong Teoh2 Yinglei Zhang3 Source:

Accounting Review. May2014, Vol. 89 Issue 3, p1083-1113. 31p. 11 Charts.

Abstract:

We investigate whether and when firms manage the tone of words in earnings press releases, and how investors react to tone management. We estimate abnormal positive tone, ABTONE, as a measure of tone management from residuals of a tone model that controls for firm quantitative fundamentals such as performance, risk, and complexity. We find that ABTONE predicts negative future earnings and cash flows, is positively associated with upward perception management events, such as, just meeting/beating thresholds, future earnings restatements, SEO, and M&A, and is negatively associated with a downward perception management event, stock option grants. ABTONE has a positive stock return effect at the earnings announcement and a delayed negative reaction in the one and two quarters afterward. Balance sheet constrained firms and older firms are more likely to employ tone management over accruals management. Overall, the evidence is consistent with managers using strategic tone management to mislead investors about firm fundamentals.