ChinHwee Tan & Thomas R. Robinson 
Asian Financial Statement Analysis [PDF ebook] 
Detecting Financial Irregularities

Foreword xi
Genesis of This Book xiii
Acknowledgments xv
Introduction 1
Why Focus on Scandals in Asia? 2
How This Book is Organized 4
As You Begin 5
Notes 5
Chapter 1 A Framework for Evaluating Financial Irregularities 7
Articulation of Financial Statements 8
Accruals and Deferrals 12
Typical Accounting Games 13
Parting Comments 22
Note 22
References 22
Chapter 2 Detecting Overstated Earnings 23
Aggressive Revenue Recognition 24
Understatement or Deferral of Expenses 29
Classification of Non-Operating Income 31
Classification of Non-Operating Expenses 31
Parting Comments 32
Case Studies 33
Longtop Financial 33
Sino-Forest 37
Oriental Century 42
References 46
Chapter 3 Detecting Overstated Financial Position 47
Excluding Both Assets and Liabilities 49
Other Off-Balance-Sheet Financing/Liabilities 53
Overstating Assets 54
Parting Comments 59
Case Studies 60
RINO International Corp. 60
Olympus 66
Oceanus 69
Notes 72
References 72
Chapter 4 Detecting Earnings Management 73
Accruals and Deferrals Revisited 74
Accounts Receivable (Accrued Revenue) and the Allowance for Doubtful Accounts 75
Deferred (Unearned) Revenue 80
Accrued and Deferred (Prepaid) Expenses 80
Deferred Taxes 81
Contingencies and Reserves 86
Parting Comments 87
Case Studies 88
Harbin Electric 89
West China Cement 98
China Biotics 101
References 105
Chapter 5 Detecting Overstated Operating Cash Flows 107
Understanding the Cash Flow Statement 108
Using Cash Flow to Assess the Quality of Earnings 113
Cash Flow Games 116
Parting Comments 118
Case Studies 118
Renhe Commercial Holdings 118
Duoyuan Global Water 123
Winsway Coking Coal Holdings 131
References 136
Chapter 6 Evaluating Corporate Governance and Related-Party Issues 137
Board Governance and Independent Directors 138
Shareowner Rights 139
Interlocking Ownership or Directorships 140
Related-Party Transactions 140
Excessive Compensation 142
Personal Use or Expropriation of Assets 143
Lack of Transparency 143
Auditor Issues 143
Parting Comments 144
Case Studies 146
China Valves Tech 146
PUDA Coal 149
Sino-Environment Technology Group Limited 153
Note 157
References 157
Chapter 7 Summary and Guidance 159
Putting It All Together 160
A Recipe for Detecting Cooked Books 163
Parting Comments 168
Case Studies 168
Celltrion, Inc. 169
Real Gold Mining 170
Fibrechem Technologies Ltd. 175
References 177
About the Authors 179
Index 181

CHINHWEE TAN, CFA, CPA, is the founding partner in Asia for a leading global alternative investor, among the largest in the world. He is a pioneer in special situation investing in Asia and has a track record of investing in more than 100 deals. He was voted by The Hedge Fund Journal as one of the emerging top 40 absolute return investors globally and was also named as Best Asia Credit Hedge Fund manager by The Asset. He is the winner of the 2013 Distinguished Financial Industry Certified Professional (FICP) Award from the Singapore government.
THOMAS R. ROBINSON, CFA, CPA, is Managing Director of the Americas at CFA Institute. Previously, Tom served as Managing Director of Education at CFA Institute, providing vision and leadership for a 100-member global team producing and delivering educational content for candidates, members, and other investment professionals. Prior to joining the CFA Institute, Tom had a 25-year career in financial services and education. Tom has published regularly in academic and professional journals and has authored or coauthored many books on financial analysis valuation and wealth management. Tom is a CFA charterholder, a Certified Public Accountant (CPA) (Ohio), a Certified Financial Planner (CFP¯®), and a Chartered Alternative Investment Analyst (CAIA). He holds a bachelor’s degree in economics from the University of Pennsylvania, and a master’s and doctorate from Case Western Reserve University.