All GLG News Analyses Filed Under: Accounting Issues

Nitish GroverPrincipal, OwnerNitish Grover and Associates

Lease Financing - Not about Accounting Alone

December 20, 2007

Analysis of:Report : Lease Financing on the Rise | www.cfo.com

The  referred  article  says  that  more  than half  of  $1.1 trillion  invested last year  in  equipment  etc. was  financed through  credit  and  leases It says  that  pending  changes  in  accounting for  leases (SFAS 13) would  probably  be  prospective  in  nature  and  that  is why  all  this  borrowing  is  taking  place. In my opinion any changes  would  apply  to  both  existing  and  prospective  leases  and  the  reason  for  borrowing  through  leases  is  probably  related  to a  need  for  capital. In  my  analysis  below  I  also  look  at  some  of  the  aspects  of  operating  and  financial  leases.

U.S. GAAP vs. IFRS – Like It or Not – It’s Probably Time for a Better Understanding

December 14, 2007

Analysis by: GLG Expert Contributor

Analysis of:U.S. GAAP vs. IFRS - The Basics | www.ey.com

The SEC recently gave its approval for foreign companies listed in the U.S. to present financials exclusively using the IASB's version of IFRS – with no reconciliation to U.S. GAAP.  The SEC is now seriously looking into the possibility of giving U.S. companies the option of using IFRS in lieu of U.S. GAAP.  There are some notable obstacles to overcome before the ultimate demise of U.S. GAAP (and transition to IFRS) becomes a reality for U.S. companies and investors.  However, the time has probably come for most investors “born and raised” on U.S. GAAP to start thinking more about IFRS and understand the similarities and key differences between the two standards.  The "Analysis" section below provides some links to recent publications by E&Y and PWC that provide nice resources on the key similarities and difference between the two sets of standards. 

Follow Up on Receivable Securitization Programs – “Debt in Disguise”

December 11, 2007

Analysis by: GLG Expert Contributor

Analysis of:Debt in Disguise | www.cfo.com

I came across an interesting article (link included in this post) on the topic of receivable securitization programs which gives a nice overview of these types of programs including the structure, economics and accounting for them.  The article essentially calls receivable securitizations as “debt in disguise” – which I believe is reasonable because receivable sales programs are more appropriately classified as financing activities.  In fact, the article points out some companies are bringing securitized receivables back on the balance sheet and treating them as debt - desiring to bring financial reporting in line with the economic reality of these programs.  The "Analysis" section below provides an actual public company example on this topic.

VeriFone Holdings (PAY) – Hindsight is “20-20” – But Some Potential Red Flags Existed

December 4, 2007

Analysis by: GLG Expert Contributor

Analysis of:VeriFone Announces Anticipated Restatement of 2007 Quarterly Financial Statements | biz.yahoo.com

As was well publicized, VeriFone Holdings (PAY) issued a press release yesterday disclosing it overstated its pre-tax income by approximately $30 million during the first three quarters of F2007 (which ends in October).  Importantly, the overstatement represents 80% of the company’s pre-tax income for the first three quarters of F2007 and the company’s shares have sold off significantly since the news broke (down approximately 50% at the time of this post).  The "Analysis" section below discusses some potential "red flags" that previously existed, as well as a recent stock sale by the company's CEO, prior to the company's negative announcement.

Nitish GroverPrincipal, OwnerNitish Grover and Associates

Risk, Fair Value and Asset Valuations in a Accounting Context

December 3, 2007

Analysis of:Crazy Little Thing Called Risk | www.nytimes.com

The  referred  article  contains  an  interesting anecdote  and  brings  to  my mind  the  conundrums that  companies  are  going  to  face  in  the  valuation  of  financial  assets  and  liabilities  in  the  context  of  SFAS 157  which  views fair  value  in a market context.When  looked  at  in  the  context  of  the  subprime  crisis,  the  decline  in  the  value  of  banking  assets  and  the  effects  of  Fed  policy  on  market  capitalization  of  financial assets  this  raises  several  interesting  questions. I look  at  some  of  these  aspects  in  my  analysis.

Avoid Value Destruction at HSBC

December 3, 2007

Analysis by: GLG Expert Contributor

Analysis of:Avoid Value Destruction at HSBC | www.maxkapital.com

The article discusses the value destruction which will occur because the bail out of the SIV will fail to allow proper price discovery of the debt portfolio acquired. 

Analyzing Payables for Warning Signals and Red Flags

November 26, 2007

Analysis by: GLG Expert Contributor

Analysis of:Extending or “Stretching” of Payables – A Common Cash Flow Manipulation Technique | theharrissolution.blogspot.com

This post specifically discusses some key potential risks with payables on the balance sheet that are common across a broad base of companies. The "Analysis" section below gives several recommended tips and techniques for investors on how to analyze payables for these specific risks. A link to a quick "case study" on Cardinal Health (CAH) is also provided.

Pending Change in Lease Accounting – Certain Financial Metrics Could Look Much Different

November 26, 2007

Analysis by: GLG Expert Contributor

Analysis of:New leasing standard brings windfall for some | financialweek.com

The FASB and IASB are in the early stages of a multi-year project which could potentially recognize more leases (historically recognized as operating) as assets and corresponding liabilities on corporate balance sheets.  The "Analysis" section below discusses an article and recent research study, as well as other relevant points, that provide a nice reminder of the significant impacts that lease accounting can have on financial statements.  A new standard within this accounting area could have significant impacts on certain profitability and leverage ratios for a broad base of companies.

Nitish GroverPrincipal, OwnerNitish Grover and Associates

Budgeting and Financial Analysis

November 12, 2007

Analysis of:Budgeting : Seeing The Future | secure.eloqua.com

Budgeting and financial analysis has always  occupied  pride of place in organization planning and control. In so far as  investment planning  is  concerned  budgeting has not got  the  importance  that  it  deserves. In this  analysis I  look at  the  concept of  the Capital Asset Pricing Model (CAPM)  and  how  it  relates  to  investment analysis.

Cost Mapping-An excellent tool towards enhancement of competitive edge

November 12, 2007

Analysis by: GLG Expert Contributor

Analysis of:Time Driven Activity Based Costing | papers.ssrn.com

In modern competitive business environment, it is absolutely important that constant focus is being given on the level of competitive edge of the business. There is no better tool towards this goal than value enhancement to the ultimate customer from the goods or services that are catered to by the business. Method of value enhancement is multi dimensional complex combination of number of divergent actions that are pursued parallelly. While, the constant focus on increased perceived value of the product creates PUSH effect towards value enhancement. Optimum pricing through enhanced value for money adds to the PULL effect towards this . To  optimise value for money, the pricing strategy plays a vital part. It is the constant endeavor of the business to give the customer optimum price( not necessary the lowest). Cost reduction without compromising the value and features of the product provides important tool towards optimum pricing.  Cost mapping is the latest tool which provides  

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