Sunday, August 3, 2008

My views on current accounting irregularities

PETALING JAYA: Accounting discrepancies may be cropping up again, judging by the failure of several public-listed companies to issue their audited financial statements on time as required under the stock exchange’s listing requirements.

On Thursday, seven companies announced delays in the submissions of their accounts – Golden Plus Holdings Bhd, LFE Corp Bhd, Oilcorp Bhd, Axis Inc Bhd, Fotronics Corp Bhd, Ho Hup Construction Co Bhd and Wimems Corp Bhd.

Bursa Malaysia and the Securities Commission are believed to have sent an investigative report to each of the seven companies on their non-submission of audited accounts.

Yes, small investors are losing money again. Who should be blamed? management? auditors? regulators? investors?

Let's start with Axis Inc. Bhd. To avoid losing money, the minimum requirement to invest in stock market is reading a price trend. Look at this price trend. Too bad if you cannot smell this company has a serious problem given a total collapse of the stock price.

As an average Joe with no forensic accounting training, I think it is important to keep an eye on any sudden jump in account receivable or any other receivable not to proportion of revenue. Normally, debt will start to rise or they will start to issue new shares(Transmile case). In Axis case, the trouble actually already surfaced in March 31, 2006. Yes, gone undetected for that long. Receivable doubled while sales only increase by 26%. Borrowing has gone up tremendously -- 100 million.

Company no 2. OilCorp Bhd. Test 1: Price action -- not looking too good.

Test 2:Accounting wise, this may be difficult to detect because it is profitable for the last 5 quarters. We can be easily cheated with PE, gearing and etc. However, given high account payable i.e. almost 6 months. In the business world, I don't think there are such generous suppliers that will give you almost 6 months term -- something is very wrong! Will you sell somebody something and not collecting money? Only common sense can save you.

Company no 3. Golden Plus Bhd.

Test 1: Price action -- not looking too good.

Test 2: Accounting wise--no fun. You have one nice super-turnaround in ONE quarter Q3 2007. A sensible person will be very skeptical of that!

Now back to my question, who should be blamed?
Management, yes. Dishonesty must be punished. Send them to jail!

Auditor, yes. If they cannot smell troubles given unusual receivable, payable, stocks and etc, they are not fit to call themselves auditors. Their licenses should be revoked!

Regulators, yes. Why prolong so many PN17? Why still allow the musical chair game to go on? Allowing toxic companies changing hands for so long are dangerous, SEC must do something!!!!!

Investors, yes. By looking at price action alone, you should know you are playing with fire, if you are not a fireman, get the hell out of these stocks that have bubble-like collapsed. If you have no accounting skills to judge the company, get the hell out of your circle of competence, buy ETFs. Stock market is not as forgiving as the Lord. If the only reason you playing is leverage -- you deserve to lose money -- lose like a man, blame yourself!!!!

1 comment:

bumi-non-malay said... one in trouble Air Asia....People hate this Tony F guy because he supported Khairy and UMNO....the Boycott is on now for all UMNO-BN cronies companies.

Keep as much as possible in Foreign Banks.....the contagian of Collateral Debt Loan defaulting is increasing because Asset is Falling with Demand. How to service?? Go to Bank Negara loh!!
Pity those who have too many properties in Malaysia.

Lets face it UMNO-BN will not relinquish power with dignity...Malaysian will pay and those who think ahead will reap the reward. Cash and GOLD is King!!

Adter Olympic watch Asia suffer....Malaysia will not be spared!!