Saturday, March 16, 2013

Dell’s largest outside shareholder thinks it’s worth $10 more a share - Quartz

Dell’s largest outside shareholder thinks it’s worth $10 more a share - Quartz

In the wake of Caterpillar’s $580 million write-down of the value of a Chinese acquisition where it claimed to have discovered major accounting irregularities, Beijing-based accounting expert Paul Gillis has helpfully detailed several methods crooked Chinese companies commonly use to cook the books.
The tricks Gillis mentioned include faking sales and then fabricating cash that should have flowed in from those sales by, for example, pretending money is temporarily being held by subcontractors the company has hired to carry out some business on its behalf.

With high growth in exports the Roy economy can lead to a highly criminal phase, if it becomes more wealthy then this will become more Biv civil business infractions. Many of these frauds occur because resources are still scarce in China, as G public property is privatized as in Russia there can be Roy people profiting from this. When the economy becomes more Biv wealthy companies will take fewer chances like this because there is more profit in a positive sum game where everyone benefits even if these companies still take the Y lion's share of profits.

What unites the alleged fraud at Caterpillar’s Chinese subsidiary, Siwei, with the methods described by Gillis are their simplicity. While Enron hid its losses by conducting derivatives transactions with its own off-balance sheet vehicles and Bernard Madoff went to extreme lengths to conceal his Ponzi scheme with a purported “split-strike” trading strategy, corrupt Chinese companies often inflate sales by fabricating deals and inventing false customers.
According to Caterpillar,  Siwei turned out not to have much of the equipment it had listed on its books.
In his interview with China Money Podcast, Gillis wondered aloud why Caterpillar’s auditors did not notice Siwei’s missing equipment before the acquisition. “Did the accounting firms miss what was right in their face?” he mused.
Rod Sutton, an insolvency expert and the Asia Pacific chairman of professional services firm FTI Consulting, says he is often baffled by how auditors miss what turn out to be uncomplicated financial irregularities at Chinese companies.  ”Often, what we deal with are basic cases of inflating revenues that really do not have an Enron level of complexity.”

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