Synopses & Reviews
Praise for Asian Financial Statement Analysis"Asian Financial Statement Analysis is a timely and useful treatment of an extremely important topic: the growth of global companies from China and Asia and their further integration into global capital markets. It studies actual cases and problems and also puts those in a larger context. I know of no other book of its kind."
Merit E. Janow, Dean, School of International and Public Affairs, Columbia University
"During the many years that we have been investing we have found that one of the biggest risks investing in capital markets around the world revolves around corporate governance and accounting fraud. ChinHwee's 20 years of investing in Asia as one of the pioneers in private/mezzanine credit investments is a testimony of his depth of wisdom and experience in understanding the real Asia on the ground."
Mark Mobius, PhD, Executive Chairman, Templeton Emerging Markets Group
"It is not often that one comes across a book on the subject of forensic accounting and evaluating financial statements written by a true expert. I whole-heartedly recommend this book to all my fellow investors. The book is both learned and practical."
Dato Cheah Cheng Hye, Chairman and Co Investment Officer, Value Partners Group Limited
"As Asia becomes more competitive and strict regulatory institutions and corporate governance slowly emerge, there is a tremendous need for education in forensic accounting and financial statement analysis. The authors' approach is holistic and they make it come alive with excellent case studies concerning real companies in Asia."
Dr. K. Ravi Kumar, Shaw Chair Professor and Dean, Nanyang Technological University
"This work is an essential tool for anyone seriously considering investing in Asia and will help avoid many of the obvious, and less obvious, pitfalls."
Hugh Young, Managing Director and Head of Global Equities, Aberdeen Asset Management Asia Limited
"As a financial market practitioner, one of my primary concerns is recommending clients to invest in a company that turns out to be a fraud. ChinHwee Tan's insightful and thoroughly researched Asian Financial Statement Analysis is an excellent resource and goes a long way to make people like myself sleep soundly at night. Only someone such as himself, with the wealth of knowledge and experience in some of the most treacherous parts of the world, could have written a book as relevant as this."
David Cui, Head of China Strategy, Bank of America Merrill Lynch
"Tan & Robinson deftly blend bedrock-solid accounting lessons with real-life examples of their application to Asian companies. The book's lessons are written in an accessible style, and should benefit investors who heed the authors' basic message: exercise intelligent skepticism in investing."
Jack Ciesielski, publisher of The Analyst's Accounting Observer and owner of R.G. Associates, Inc.
"Professor ChinHwee Tan is a foremost expert in the practice of forensic accounting, and his skills and insights are much appreciated from the halls of government agencies to the classrooms of MBA lectures, including those at Shanghai Advanced Institute of Finance (SAIF). This book is a valuable contribution to the investment community and should be an indispensible addition to your library."
Hong Yan, PhD, Professor of Finance, Shanghai Advanced Institute of Finance (SAIF) Associate Director, China Academy of Financial Research (CAFR), Shanghai Jiao Tong University
"This book introduces useful tools for serious Asia investors from authors with exceptional credentials in the field."
John Rogers, CFA, CEO of CFA Institute
Synopsis
Given the move towards international financial reporting standards and towards investing in the Asia Pacific region there is a need for A Framework, for detecting financial irregularities independent of a particular set of accounting rules and using real life Asia-Pacific company examples. Co-authored by two leading authorities in this field A Framework will cover this topic in depth by beginning with a framework for detecting these irregularities and then using company examples to demonstrate the most common types of irregularities in Asia-Pacific companies. While some of the accounting techniques used by these companies are similar to those in the U.S. there are some unique issues in the Asia-Pacific region related to corporate governance and disclosure issue. As well as being a complement to existing CFA Institute/Wiley Investment Series titles, A Framework will be a resourceful tool to move us into the next phase of global reporting standards.
Synopsis
A new framework for detecting financial irregularities and manipulations in the international financial reporting of Asia-Pacific companiesAs investment opportunities in Asia—particularly in China—continue to grow, there is a greater need for a robust process for detecting financial irregularities. While many books exist on detecting irregularities, those books are most often focuses on U.S. accounting standards using U.S. companies as examples. Given the move toward IFRS, this book offers a framework for detecting fraud and irregularities independent of any particular set of accounting rules.
- Presents a framework for detecting financial irregularities in Asia-Pacific countries that is not based on any one particular set of accounting standards
- Coauthored by leading authorities in the field
- Demonstrates the most common types of irregularities that occur in Asia-Pacific companies
Synopsis
Gain a deeper understanding of Asian financial reporting and how to detect irregularitiesThe Asian region, and particularly China, is becoming a hotbed of investment activity. There have been quite a few accounting scandals in Asia in the recent years – now rivaling those we have seen in the Americas and Europe. Assessing potential or active overseas investments requires reliance on financial statements, the full parameters of which may vary from region to region. To effectively analyze statements, it is necessary to first understand the framework underlying these financial statements and then lay out a protocol for detecting irregularities. It's impossible to create and implement a practical plan without a deeper knowledge of the various factors at play.
Asian Statement Analysis: Detecting Financial Irregularities provides a framework for analysis that makes irregularities stand out. Authors Chin Hwee Tan and Thomas R. Robinson discuss international financial reporting standards, including characteristics particular to the Asian region. Tan and Robinson's combined background in academia and Asian finance give them a multi-modal perspective and position them as top authorities on the topic. In the book, they address issues such as:
- Detection of irregularities independent of particular accounting rules
- The most common irregularities in the Asian market
- Similarities and differences between U.S. and Asian accounting techniques
- An overarching framework for irregularity detection
The book uses real-world examples to illustrate the concepts presented, with the focus on Asian companies. As the first ever in-depth study on manipulation and irregularities in the Asian market, Asian Financial Statement Analysis: Detecting Financial Irregularities is uniquely positioned to be a valuable resource in the move toward the next phase of global reporting standards.
Synopsis
Financial scandals and irregularities can occur globally, but most recently have begun a steady climb in Asia. Until now not much had been documented about these incidents, and there remains a significant lack of corporate governance in these markets.
Asian Financial Statement Analysis: Detecting Financial Irregularities was created to address this knowledge gap while keeping the global investor in mind. Coauthored by two leading authorities in the field, it is the first ever in-depth study into detecting financial irregularities specifically in the international financial reporting of Asia-Pacific companies.
ChinHwee Tan is highly acclaimed by The Hedge Fund Journal and World Economic Forum and is the founding partner in Asia for a leading global alternative investor, among the largest in the world. Dr. Thomas R. Robinson is Managing Director of the Americas at the CFA Institute and has written and spoken extensively on the subject of financial statement analysis. Together they have created a practical guide for anyone looking to perform effective forensic analysis on the financial statements of Asian companies, generally for the purpose of making solid investment choices.
The first section of the book lays out a proven framework for detecting irregularities in profits, financial position, or cash flow. Its subsequent chapters illustrate the most common irregularities in the Asia-Pacific region and some of the warning signs to look for. Each chapter also includes a useful checklist of different analysis techniques, an overview of the most common games that companies play, and a full case study of an Asia-based company to help illustrate the concepts in a holistic manner. The authors' personal experiences in both global and Asian financial markets enrich the text and offer readers a firsthand look at real world scenarios, helping them further scrutinize companies within that same space.
Asian Financial Statement Analysis: Detecting Financial Irregularities helps professionals navigate the intricacies of investing in Asian business ventures as they look to expand their investment portfolio. It not only offers a comprehensive look at detecting irregularities regardless of accounting rules, but also helps transition professionals into the next phase of global reporting standards. The book is the only resource financial professionals need to better guarantee wise investments and avoid corrupt business practices in the unique Asia-Pacific region.
About the Author
CHINHWEE TAN, CFA, CPA, is the founding partner in Asia for a leading global alternative investor, among the largest in the world. He is a pioneer in special situation investing in Asia and has a track record of investing in more than 100 deals. He was voted by
The Hedge Fund Journal as one of the emerging top 40 absolute return investors globally and was also named as Best Asia Credit Hedge Fund manager by
The Asset. He is the winner of the 2013 Distinguished Financial Industry Certified Professional (FICP) Award from the Singapore government.
ChinHwee is an Adjunct Professor in a number of top universities teaching private equity investing and forensic accounting. He is a CFA charterholder and is a registered CPA in both Singapore and Australia. Mr. Tan was honored as a World Economic Forum Young Global Leader and the World Cities Summit Young Leader. He enjoys spending time with his three young children.
THOMAS R. ROBINSON, CFA, CPA, is Managing Director of the Americas at CFA Institute. Previously, Tom served as Managing Director of Education at CFA Institute, providing vision and leadership for a 100-member global team producing and delivering educational content for candidates, members, and other investment professionals. Prior to joining the CFA Institute, Tom had a 25-year career in financial services and education. Tom has published regularly in academic and professional journals and has authored or coauthored many books on financial analysis valuation and wealth management. Tom is a CFA charterholder, a Certified Public Accountant (CPA) (Ohio), a Certified Financial Planner (CFP®), and a Chartered Alternative Investment Analyst (CAIA). He holds a bachelor's degree in economics from the University of Pennsylvania, and a master's and doctorate from Case Western Reserve University.
Table of Contents
Foreword xi
Genesis of This Book xiii
Acknowledgments xv
Introduction 1
Why Focus on Scandals in Asia? 2
How This Book is Organized 4
As You Begin 5
Notes 5
Chapter 1 A Framework for Evaluating Financial Irregularities 7
Articulation of Financial Statements 8
Accruals and Deferrals 12
Typical Accounting Games 13
Parting Comments 22
Note 22
References 22
Chapter 2 Detecting Overstated Earnings 23
Aggressive Revenue Recognition 24
Understatement or Deferral of Expenses 29
Classification of Non-Operating Income 31
Classification of Non-Operating Expenses 31
Parting Comments 32
Case Studies 33
Longtop Financial 33
Sino-Forest 37
Oriental Century 42
References 46
Chapter 3 Detecting Overstated Financial Position 47
Excluding Both Assets and Liabilities 49
Other Off-Balance-Sheet Financing/Liabilities 53
Overstating Assets 54
Parting Comments 59
Case Studies 60
RINO International Corp. 60
Olympus 66
Oceanus 69
Notes 72
References 72
Chapter 4 Detecting Earnings Management 73
Accruals and Deferrals Revisited 74
Accounts Receivable (Accrued Revenue) and the Allowance for Doubtful Accounts 75
Deferred (Unearned) Revenue 80
Accrued and Deferred (Prepaid) Expenses 80
Deferred Taxes 81
Contingencies and Reserves 86
Parting Comments 87
Case Studies 88
Harbin Electric 89
West China Cement 98
China Biotics 101
References 105
Chapter 5 Detecting Overstated Operating Cash Flows 107
Understanding the Cash Flow Statement 108
Using Cash Flow to Assess the Quality of Earnings 113
Cash Flow Games 116
Parting Comments 118
Case Studies 118
Renhe Commercial Holdings 118
Duoyuan Global Water 123
Winsway Coking Coal Holdings 131
References 136
Chapter 6 Evaluating Corporate Governance and Related-Party Issues 137
Board Governance and Independent Directors 138
Shareowner Rights 139
Interlocking Ownership or Directorships 140
Related-Party Transactions 140
Excessive Compensation 142
Personal Use or Expropriation of Assets 143
Lack of Transparency 143
Auditor Issues 143
Parting Comments 144
Case Studies 146
China Valves Tech 146
PUDA Coal 149
Sino-Environment Technology Group Limited 153
Note 157
References 157
Chapter 7 Summary and Guidance 159
Putting It All Together 160
A Recipe for Detecting Cooked Books 163
Parting Comments 168
Case Studies 168
Celltrion, Inc. 169
Real Gold Mining 170
Fibrechem Technologies Ltd. 175
References 177
About the Authors 179
Index 181