Accounting & Financial Analysis News by GLG Council Members

Paul MillerProfessorREGENTS OF THE UNIVERSITY OF COLORADO

Truth is truth, whether it's welcome news or not

July 7, 2009

Analysis of:The Fair Value Deadbeat Debate Returns | www.cfo.com

Financial reporting works best, and maybe only, when it is complete and unbiased.  If it is biased to manage the message, it becomes a method of distributing propaganda and all credibility is lost.The economics of gain occurrence is unarguable.  If management can retire a debt for a smaller amount than the carrying value, then there are fewer liabilities and more equity.  More equity means income has occurred.  There is no rationality behind efforts to suppress truthful news just because you don't like it.  Let's all hope the standard setters are not swayed by "visceral" impulses into the direction of keeping useful information out of financial statements.  The inevitable consequence is greater risk and discounted share and bond prices, simply because users don't have access to the truth.  That does no one any good.

Nitish GroverPrincipal, OwnerNitish Grover and Associates

The Fed, The Economy, Accounting and Regulation - Changing Landscape for a New Century

June 24, 2009

Analysis of:US Groups Face Regulatory Revamp | www.ft.com

Banks, Insurance companies, Investment bankers, Hedge funds - they are all up against the wall facing new regulatory pressures. The Alan Greenspan era is over. Alan Greenspan was supposed to have a magic wand with which nothing went wrong. Its like Napoleon asking for a few lucky generals - Greenspan was one such in the financial world of today. Bernanke obviously is not. In this analysis I look at some of the aspects of the changing regulatory landscape.

Markets don't like Taxes

June 22, 2009

Analysis by: GLG Expert Contributor

Analysis of:Financial Times | www.ft.com

The tax avoidance by Foreign invested companies in China is in fact something faced in equal measure by India(e.g. Vodafone) and also true for Offshore structures channeling spurious domestic investment back into the country. The lack of taxation benefits brings on real challenges to the valuations and the profit in a deal, however, the huge amounts of money involved would definitely help the starved economies in question.  Tax benefits partaken by investors thru such means are increasingly being questioned because these inflows thru relevant taxation ensure participation of the government involved and bring relief to the local economy. Increasingly, one finds that tax shelters sold by KPMG, PWC, UBS and others are being questioned fairly and squarely for the lack of oversight and their dependence on local and international corruption. each such deal only increases more misconfidence in the market because of the noise on ethical practices and such practices are no longer recommended

Offshore Holding for Foreign Invested Enterprises may now be under China Tax Rules

June 22, 2009

Analysis by: GLG Expert Contributor

Analysis of:Financial Times | www.ft.com

The mainland tax authority has delivered grim news. In early 2009, the China State Administration of Taxation has issued a few circulars to revise the existing rules governing foreign companies earning income from China. These circulars basically cover all types of income foreign companies may earn from China. It could be a foreign company having a working place in China and earning service income or a foreign company without any place or person in China but earning passive income such as dividend, interest, royalty, rental and capital gain from China. In particular, circular No. 3 and No. 19 set out detailed compliance and disclosure requirements. They include mandatory registration, periodic reporting, final reconciliation, etc. Failure to do any step may cause trouble in remitting money out of China.

MTM- Does Not Represent True & Fair Value

June 19, 2009

Analysis by: GLG Expert Contributor

Analysis of:SEC won't suspend mark to market - source | money.cnn.com

Mark To Market(MTM) basis for valuation of INVESTMENTS made by BANKS shall distort Balance Sheets and published accounts of the Banks, and may Strangulate Economic Growth, particularly in periods when GOWTH is needed. Financial Institutions\Investment Banks\Pension Funds and BANKS make longterm investments in shares/stocks/govt. securities for long term growth benefits. Requiring them by law to value these investments at MTM principles regularly at weekly/ monthly/quarterly/yearly intervals is just like calling upon their managements to become market participants like speculators/hedge funds/derivative operators or BROKERS in CDS. BANKS are trustees of PUBLIC DEPOSITS. This is  the perception of the PUBLIC .  Unfortunately some banks mixed up the domain of their operations because of poor regulation or deliberate oversight by the REGULATOS.The need of the hour is Strict Surveillance, not making rules that kill the GOOSE that laid the GOLDEN EGGS that is-BANKS, Institutions of Growth

Nitish GroverPrincipal, OwnerNitish Grover and Associates

Accounting and Financial Risk in the Background of Declining Credit Availabilty

June 16, 2009

Analysis of:Liquidity, Crime Woes Shake Up Chief Risk Officers | www.cfo.com

The current situation of non availability of credit is leading to a position where Chief Risk Officers and CFO's will have a difficult time in funds management, meeting profitability targets and running a business. Funds constraints  will make it difficult to extend credit to customers when financial institutions and creditors are making credit vanish. Such a situation may also lead to conditions where accounts may be stage managed simply to keep creditors at bay. In this analysis I look at the peculiar conditions which I expect to come to play in the coming years and suggest that better control systems need to be in place not just in organizations but also in the wide spread global capital village.

Nitish GroverPrincipal, OwnerNitish Grover and Associates

Cost of Capital - The Formula Which No Longer Makes Sense In A Changing World

May 27, 2009

Analysis of:A Losing Formula | www.cfo.com

The financial world is changing and undergoing metamorphosis. Companies like GM and Chrysler are insolvent. Stock indices gyrate for no reason. Financial giants regularly go bust these days - so it seems. In this scenario what we have is a situation where the basic formulae for computing the cost of capital and such basics as beta and delta are becoming misleading. It is just not possible to calculate the systematic risk attached to a market or the unsystematic risk of a security. In this analysis I look at where this confusion is heading and how we may soon see a sea change in the way in which financial costs based on accounting statements are calculated.

Necessity, who is the mother of invention - Plato's promulgations on effective Internal Audit

May 19, 2009

Analysis by: GLG Expert Contributor

Analysis of:Internal Auditors: Mission Unaccomplished? | www.cfo.com

As economic conditions change, organizational priorities also require adjusting.  By virtue of the Sarbanes Oxley Act (2002) (SOX), organizational resources, including internal auditors, have been heavily directed to what is essentially a legal compliance role, which is normally just one of the areas of internal audit focus.  During the past 7 years organizations that needed to comply with SOX financial reporting requirements directed any competent internal audit and controls specialists to meet reporting deadlines to ensure a clean bill of health from external auditors, in order to avoid the opobrium resulting from any reported infractions.  Some entities established dedicated internal controls functions to take care of the compliance efforts, while others simply directed the existing internal audit departments to take responsibility.  In my opinion, this heavy emphasis on legal compliance resulted in a risky focus away from other key areas, contributing to the current economic crisis

Internal Auditors: Generalists Asked to Perform Specialist Functions

May 18, 2009

Analysis by: GLG Expert Contributor

Analysis of:Internal Auditors: Mission Unaccomplished? | www.cfo.com

Many companies are asking more of their internal auditors, particularly in with risk assessment and process improvement, and internal audit departments often lack expertise in those areas.  Unfortunately, the article fails to address three key issues:1.  Even when internal auditors possess process improvement, risk assessment or fraud detection skills, they often lack the industry or sub-industry expertise necessary to allow them to identify red flags or know best practices.2.  Many firms have no internal audit function whatsoever, nor do they engage any external providers to assist with such reviews.  This is particularly true in the hedge fund business, one of the leading industries to hit the headlines this year.3.  Staff turnover with internal and external auditors increases the chances that risk points are missed.

Nitish GroverPrincipal, OwnerNitish Grover and Associates

Forensic Accounting - Fraud - A Perspective

May 18, 2009

Analysis of:In House Fraud Cases Surge | www.ft.com

The referred article speaks of the increased levels of fraud by insiders in organizations across countries - especially those that are hit by recession. In this analysis I take a look at how this will impact forensic accounting and indepth audits. The role of the accountant and auditor will gain emphasis and management will have to take increased care to safeguard assets - the stewardship function.

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