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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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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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