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The Accounting of Words & The Hiss of the Asian Snake

 “Bamboo Innovators bend, not break, even in the most terrifying storm that would snap the mighty resisting oak tree. It survives, therefore it conquers.”
BAMBOO LETTER UPDATE | March 9, 2015
Bamboo Innovator Insight (Issue 72)

  • The weekly insight is a teaser into the opportunities – and pitfalls! – in the Asian capital jungles.
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Dear FriendsThe Accounting of Words & The Hiss of the Asian Snake“No, you can’t hide behind GAAP. GAAP accounting rules are the ones that we all live by and they are very strict. We had both KPMG and Ernst & Young restate that they are ok with our numbers.”

This was the hissing sound made by Computer Associates’ Chairman and CEO Sanjay Kumar before he was later sentenced to 12 years in prison for his role in the $2.2 billion accounting fraud. The accounting disclosure of words — the level of disclosure (how much you say), its tone (what do you mean), and its transparency (how you say it) — can be an additional helpful tool for investors and regulators to ferret out the Asian Snake engaging opportunistically in accounting fraud.

As Buffett puts it wisely: “Under any rules, if the CEO, wants to obfuscate, they can do that; and if they want to make it clear, they can do that. If they want to provide you with fluff, they can do that. If they want to provide you with substance, they can do that. The CEO will look at any rules through his own particular glasses, and either look at them as a way to give his shareholders more information, or to do some kind of tap dance number.”

Despite the approximately 50/50 mix in preparing financial disclosures, the overwhelming focus is on accounting numbers. Significantly less time is spent looking at the context or the communication of these numbers. Opportunities are thus presented for investors and regulators to analyze not only the text of the Annual Report, Management Discussion & Analysis (MD&A) sections and IPO prospectuses, but also press releases, conference calls, and management interviews, etc. Investors may scrutinize the content for truthful revelation or opportunistic structuring of language in these situations by managers intent on hiding adverse information from investors. We will be examining and applying textual and unstructured data analysis tools – such as the FOG Index, the Narcissism Index, Tone Management, the 4Cs (Candor, Context, Complexity/ Confusion, Contradictions/ (in)Consistencies) etc – in different real-world western and Asian cases, including understanding their limitations.

Week 1 – Survival in the Asian Capital Jungle: Who Knows What When? (108 slides)

Week 2 – Western Tools to Catch An Asian Snake? (111 slides)

Week 3 – The Incentivized Asian “Wedge” Snake to Tunnel Corporate Wealth (revised to 105 slides from 86 slides)

Week 4-5 – Shedding of the Asian Snake’s Skin, The Opportunistic Tunneling of Corporate Wealth (157 slides)

Week 6 – Descend into the Asian Snake’s Lair, Occult Offshore Centers, Tax-Tunneling, and Consolidation Craftiness (89 slides)

Week 7-9 – The Asian Snake Charmer and Stock Manipulation Scheme  (112 slides)

Week 10 – The Accounting of Words & The Hiss of the Asian Snake (57 slides)

Warm regards,

KB

The Moat Report Asia

www.moatreport.com

http://accountancy.smu.edu.sg/faculty/profile/108141/KEE-Koon-Boon

A new monthly issue of The Moat Report Asia is now available!

Access the in-depth idea presentation:

http://www.moatreport.com/members/

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Bamboo Innovator Daily Insight: 9 Mar (Mon) – Produce More by Removing More

Life

  • Produce More by Removing More: Farnam
  • Munger: “Low goals do cause lower performance and high goals increase the percentage of cheating. Each organization has to find its own way.” Farnam
  • How The Most Powerful People Get Things Done: 4 Tips From A White House Staffer: Barker

Investing Process

  • Reply to CFO of SGX-Listed China Environment (CENV SP) on report “Potential Accounting Tunneling Fraud at China Environment?”: AsianExtractor
  • Bridgewater’s Ray Dalio Explains the Power of Not Knowing: II

Greater China

  • Reply to CFO of SGX-Listed China Environment (CENV SP) on report “Potential Accounting Tunneling Fraud at China Environment?”: AsianExtractor
  • China’s Shandong province will have to sell assets to pay debt: governor: Reuters
  • China’s tax officials vow ‘shock and awe’ campaign in war against cross-border tax cheats: SCMP
  • Capital flight a risk that must be monitored: SCMP
  • Legal power of local government pledges in China rejected: WCT
  • Move Over Mao: Beloved ‘Papa Xi’ Awes China: NYT

Japan & Korea

  • Lotte Group’s aggressive acquisitions of companies are raising concerns as to whether it is biting off more than it can chew: KT
  • Big Korean companies fill 40 pct of outside directors with ex-officials: KH

ASEAN

  • Reply to CFO of SGX-Listed China Environment (CENV SP) on report “Potential Accounting Tunneling Fraud at China Environment?”: AsianExtractor
  • Reinforcing SGX listing and enforcement framework; proposed power to fine an issuer up to S$250,000 per contravention and a maximum of S$1 million for multiple charges, prohibit an errant issue manager from participating in specified SGX listing applications, require an errant director or officer to resign, or prohibit any issuer from appointing that person. BT
  • No protection if misconduct detected in 1MDB, Najib assures Umno leaders: Star
  • For SGX, a dearth of IPOs amid volatility: BT
  • Indonesia Has The Money, But Can It Spend It?: WSJ

Macro

  • LSE has defied expectations to go from prey to predator: FT
  • Real danger lies in Mitteleuropa’s financial sector; At zero interest rates, it is very difficult for the German insurance industry to remain solvent: FT
  • Bonds: How firm a foundation? Regulators question if corporate debt could withstand a sudden reversal: FT
  • World’s Biggest Ship Title Shifts Monthly as Rates Fall; Bragging rights for the world’s largest container ship have changed hands four times in as many months – – and will soon shift again. Bloomberg
  • Many Swiss banks are saddled with a batch of accounts by clients who have refused to declare them. Now, they must soon be disclosed to the IRS thanks to recently implemented U.S. law. WSJ

TMT

  • Crunch time: how the Apple Watch could create a $1tn company: Guardian
  • Surge in Smartphones Sets Off New Wave of Corporate Self-Reinvention: NYT
  • Smartwatch Pushes Apple Into High-End Fashion: WSJ
  • At Startups, People Are ‘New Infrastructure’; Uber, Instacart and Others Engage in Wholesale Recruitment of Workers: WSJ
  • Web-Video Newcomers Undercut YouTube; Facebook, Snapchat, Vessel offer better terms for revenue sharing: WSJ
  • Cash may be king, but smartphones seek to rule at the register: AFP
  • Google: The Value of Thrift: WSJ
  • Apple’s Ascent: From ‘Niche’ Stock to Juggernaut; Onetime Ugly Duckling of the Market Is Set to Join Blue-Chip Index: WSJ
  • As Driverless Car Rivalry Emerges, Mobileye Bulls Counter: Bloomberg

Healthcare

  • The three biggest companies that collect and disseminate credit information on more than 200 million Americans will change the way they handle errors and list unpaid medical bills as part of the broadest industry overhaul in more than a decade: WSJ
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