GLG News by Utilities and Power Generation Industry: Financial Statement Analysts

George PughPresidentGeorge Pugh & Co

Paying Banker Bonuses: Good Business?

February 3, 2009

Analysis of:'Idiots' Indeed | online.wsj.com

In the Wall Street Journal opinion, paying off the $18 billion in bonus pool is just good sense. The only real problem was that some bankers exercised poor timing.  “John Thain's year-end bonuses to Merrill Lynch executives, whatever their rationale, reflected an acute case of political tin ear.” The Journal also feels that the compensation is mislabel: it is not bonuses at all, but rather like tips, constituting the majority of the employees compensations and it has the bonus pool in way has fallen to the insignificant level of about $112,000 person, and paying them will help the NYC. The Opinion Page opposes any limits on employee compensation for fear of harm to the business motivation.

George PughPresidentGeorge Pugh & Co

Wal-Mart Banking on the Unbanked

June 28, 2007

Analysis of:At Wal-Mart, a Back Door Into Banking | www.nytimes.com

Jane J. Thompson, called prepaid cards and money center services “foundational products” and ““Our concept is to go up the credit ladder of financial services,” The new products, like the prepaid debit card, will be offered through third-party partners, allowing Wal-Mart to sell bank like services without a government license, very important in view of the previous failures and current regulatory climate. .“The logic behind a lot of these services is to increase traffic and do it in a way that puts money in people’s hands,” said Andrew Dresner, a payments industry consultant at Oliver Wyman Financial Services. “You give them a couple hundred dollars,” when they cash their paycheck, “and they will buy other things.” Combine the logic of proximity with the fact that 20 percent of customers, 27 million people do not have checking accounts, and you have a truly potent combination.

George PughPresidentGeorge Pugh & Co

Fair Value Is Not a Just or Proper Price

June 20, 2007

Analysis of:PCAOB ponders how to audit fair value | www.cfo.com

PCAOB’s chairman Mark Olson has said of SFAS No.159: "The increased use of fair value accounting poses a challenge for auditors and the PCAOB." Time is short as this SFAS goes into effect for most companies for financial years beginning after November 15, 2007, except for early adopters. The new standards cover valuations of stocks, bonds, loans, warranty obligations, and interest rate hedges when the Fair Value option is elected. Under existing PCAOB standards, the auditors need to understand how such estimates are derived and may have to develop independent estimates when independent data is available. Both SFAS No.159, “The Fair Value Option for Financial Assets and Financial Liabilities” and No.157 “Fair Value Measurements”, are going to have a great impact on how financial information is presented and the additional testing, both factual and procedural to properly audit it.

George PughPresidentGeorge Pugh & Co

In Fraud, Many Hands Make Light Work

June 18, 2007

Analysis of:Financial-Statement Fraud not a Solo Job, According to Study of Pre-Sox Years | www.acfe.com

This article is based on “Control Overrides in Financial Statement Fraud” by Robert Tillman and Michael Indergaard of St. John’s University, available at http://www.theifp.org/research%20grants/tillman_final_report.pdf The study examines 834 companies that filed financial restatements between 1997 and 2002. Of those 374 (45 percent) were accused of securities fraud and subject to shareholder suits, SEC enforcement action or both. Of those resulting in legal action seven individuals on average were implicated holding a variety of senior positions, including board members. management and auditors  

George PughPresidentGeorge Pugh & Co

Finding Better Arguments for Amending Sarbox

June 5, 2007

Analysis of:Dealing With Sarbox | online.wsj.com

Kenneth Wilcox, President of SVB Financial, believes that Sarbox has made the US economy less competitive. He disputes claims by a Big Four accounting firms that the costs are declining, with second year costs only 40% of the first year. In 2006 SVB paid over $20 million to the Big Four, for an average of about $17,000 per employee. This is more than five times as much as we paid them only three years ago. The new rules have contributed to a shortage of trained personnel while PCAOB under SEC guidance discourages the auditors from either offering advice or exercising judgment. As a result, almost 10% of all publicly traded companies announced restatements in 2006. SARBOX has greatly increased the cost of doing business, and in the author’s view to no good purpose.

George PughPresidentGeorge Pugh & Co

The Real Cure for SARBOX or the Iatrogenic Illness

May 31, 2007

Analysis of:Growing the 'Private' Club' | online.wsj.com

Ms. Orit Gadiesh, Chairman, and Mr. MacArthur, Director of The Global Private Equity Practice at Bain & Company, believe that private equity is becoming a benchmark of performance for CEOs and boards of directors. The authors offer the following reasons for the popularity of private equity funds: -Funds focus on a reasonable time frame, three to five years typically, rather than on quarterly performance, the common timeframe for public companies. -Funds have detailed plans and time tables, enforcing discipline for clearly understood goals. -Funds quickly dispose of poorly performing assets, unlike some traditional managements. -Funds have a record of success, and exceptional earnings. Though not the only model, private equity funds provide an example of clear planning and solid execution with high returns from 1969-2006.

George PughPresidentGeorge Pugh & Co

How Proposed Rules Could Render Current Accounting Practice Meaningless

May 24, 2007

Analysis of:Profit as We Know It Could Be Lost With New Accounting Statements | online.wsj.com

In the months to come, the FASB and the IASB, its European counterpart, will release a draft on plans to revamp current financial statement disclosures. Two possible changes cited in the article are the disappearance of net income, and an asset presentation that no longer separates assets and liabilities. The following link provides possible financial statements under the proposed rules:http://online.wsj.com/public/resources/documents/WSJ0507-fasac_march07.pdfIn the past, financial statements were issued to satisfy the needs of bank lenders. One of the goals is to provide investors with better information. It is envisioned that one day, a global set of accounting standards will come from this effort.Certainly, if implemented, the accounting disclosures would change radically, making the current professional knowledge base obsolete. The question should be: will these changes help the users?

George PughPresidentGeorge Pugh & Co

Do Declared Aims Fit the Company?

May 24, 2007

Analysis of:Telling a Big Story in a Few Words | online.wsj.com

“101 Mission Statements form Top Companies” by Jeffry Abrahams is the author’s on the great modern creation, the Mission Statement.The book itself has only eleven pages of original writing, then all collection of mission statements. The ones mentioned in the review, have little if any connection with what a company is actually doing. Gillette’s mentioned nothing of shaving, “. Perhaps a mistake: Today Gillette is a part of Procter & Gamble.”The whole issue turns on providing a clear statement which can usefully guide the people in a company. It is basic and simply, but a thing people can refer to when making decisions for which there is no other guidance. J&J’s served it well during the Tylenol recall. Would others do as well?The implications go beyond mission statements to quality of thought going into planning and strategy,.

George PughPresidentGeorge Pugh & Co

No Harman Trying

May 24, 2007

Analysis of:Unusual Buyout Offers a Piece to Shareholders | online.wsj.com

On April 26, 2007 Kohlberg Kravis Roberts & Co. and Goldman Sachs Group agreed to buy Harman International for $7.8 billion in cash: $120 a share, a 17% premium. The wrinkle is that shareholders would be allowed to exchange their holding for shares in the new privately owned company. There have been other instances such as Kindercare, but ordinarily they don’t build them into the original offer. These so-called stubs would be traded OTC if at all, and would be subject to reduced regulation. Stub equity allows a buyout firm to put more of its own money to work on a deal, by reducing the amount of capital it needs to raise from other buyout funds, and the need for other partners. The concept is interesting, but it says a great deal about other issues as well.

George PughPresidentGeorge Pugh & Co

Ox in the Box

April 29, 2007

Analysis of:Oxley: I'm Not Happy with Sarbox | www.cfo.com

 

The Sarbanes-Oxley Act of 2002 passed all most unanimously and received a grudging acceptance from corporate America. This article contains and interview with Mr. Oxley.

Section 404 of the Act and the rules promulgated by the Public Company Accounting Oversight Board (PCAOB) a private-sector, non-profit corporation created to oversee the public company auditors.. Its stated purpose is to 'protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports'.

The results tied to Section 404, especially relating to the PCAOB have been very strong. Mr. Oxley, himself, has come to view the actual implementation of this section as flawed. He believes that: “It was Auditing Standard No. 2 [the standard for auditing internal controls over financial reporting], promulgated by the PCAOB that started all the problems…. but by the time the PCAOB was done, it was 330 pages of regulations. It was far too prescriptive and [more] expensive than anyone anticipated.”

Thus we have a section of the Act, which has grown to the level that one of the authors sees problems with it. The following link gives good, general help:

http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act

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