GLG News by Mr. Nitish Grover FCA, AICPA Intl Associate, Principal, Owner
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The Satyam Fiasco - Accounting Fraud - Audit Quality - A Look at Some Issues
January 12, 2009
Govt. announces supersession of Satyam Board - to appoint 10 new directors | economictimes.indiatimes.com
The Satyam fracas is one more fraud in the long history of misappropriation of resources given in trust to individuals and institutions. This particular episode is drawing heated debates in India - especially on television and print news. What this entire episode however brings to me is the following - (a) any control system is only as good as the people administering it. (b) audits are not a replacement for responsible management (c) Laws and regulations cannot deter persons who wish to defeat them - atleast temporarily. What is required is that companies are administered ethically and in accordance with rules of conscience. In this analysis I look at the entire episode from the viewpoint of audit quality and administration of accounting standards.
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December 18, 2008
Madoff Fallout Spreads Worldwide | www.ft.com
The Madoff scam and the disappearance of over $50bn to God knows where is intriguing by itself. The entire scam and the confused monetary and fiscal policies of today point to a system of neglected risks, warnings, ignored controls and a lot more. In this analysis I look at what to expect after the Madoff scandal.
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Accounting - Fair Value - The Bailout Package - Why Standards Will Stay and Improve
December 10, 2008
Cox : Accounting is Not a Fiscal Policy Tool | www.cfo.com
The comments of Chairman Cox are very heartening and are the culmination of a long and active drive by Accountants to diverse Accounting from politics, fiscal policy and taxation. While accounting is subject to several assumptions, the role of standards is all pervasive. The indicator that fair value plays a critical role along with valid guidelines for impairment of assets is bound to play an important role in the ongoing economic events. In this analysis I look at how fair value, the bail out package and accounting standards are all interlinked.
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November 14, 2008
Could Bank Rules Break The Fair Value Debate | www.cfo.com
Accounting rules are being blamed for causing the decline in the global economy, the rising jobless figures and all other multifarious ills which are gripping the financial sector and capital markets. In the midst we now have a proposal that financial solvency for banks should not be measured based on accounting results and accounting rules. In this analysis I take a look at some of the aspects of this proposal.
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The Global Financial System - Required and Expected Changes - A Look at Expectations
November 10, 2008
IMF Chief Curbs Summit Expectations | www.ft.com
We are told not to expect Bretton Woods II on November 15, 2008 when the global financial summit takes place. But then are we expected to see no change in the present global economic turmoil. In this analysis I state what I expect to happen on the global financial scene.
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November 10, 2008
Derivatives:Giving Credit Where It is Due | www.economist.com
We live in a interesting recessionary world. The global economy is retracting and the search is on to find the culprit. The US President Elect says that tackling the economic crisis is his top priority. Central Banks and World leaders across the globe are echoing the same tune. But no one knows the answer which as the song goes " The answer my friend is blowing in the wind". In this analysis I look at the effects of the the CDO vehicle and the reforms needed in the financial system. I also examine the effects of present monetary policy which to my mind are completely misguided and the effects of accounting rules.
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The Increasing Relevance of Going Concern in the Declining Economy - Implications for Analysts
November 10, 2008
SFAS Exposure Draft On Going Concern | www.fasb.org
Going concern has since as far as I can remember been a fundamental accounting assumption and has been codified in general technical literature, International Standards, FASB standards, Indian standards and generally been accepted globally. The exact methodology to arrive at a conclusion of going concern has however hardly ever been codified. The FASB exposure draft on the subject does path breaking work in this area. In this analysis I look at the concept of going concern and its relevance in the present global financial economic environment.
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Asset Diversification, Accounting And The Myths of Globalization - Where Are We Headed?
November 5, 2008
The Myth of diversification: All Bets Are Off | www.economist.com
As the global financial meltdown continues, we hear more and more about the role of Central Banks, Pension Funds, Accountants and a host of other players. We are also hearing a lot of talk of accounting rules being responsible for the global financial crisis. In this analysis I argue that all these are only contributory factors - what really matters is the role of human greed in imperfect markets. All myths are today being demolished and honored financial fortunes and names are being wiped out. In this analysis I argue on why these myths are disappearing and where we may be headed in the arena of financial markets.
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When The Sky Falls - How Accounting Analysis Can Help Correct The Financial Imbalance
October 14, 2008
A Power That May Not Stay So Super | www.nytimes.com
Over the last few weeks the sky has fallen and the latest cover of the Economist has the heading "Saving the system - The Panic, The Rescues and a Special Report on the World Economy". Different newspapers are covered with details of virtual nationalizations, lost bank confidence and the list goes on. In this analysis I look at how accounting analysis can actually help correct financial imbalances when the sky has literally caved in or fallen.
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October 13, 2008
Bush says 'Co-ordinated' response necessary | www.ft.com
The clarion call today is for coordinated global action to surmount the global credit and liquidity problem. It does not appear to be leading anywhere. While the initial epicenter was located in the United States it has now spread to other areas of the globe and in my opinion the epicenter now extends to Europe and Asia as well. In this analysis I take a look at the steps being taken and why these are inadequate and the policy makers are running after red herrings.
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October 7, 2008
Politicians rail against fair value accounting | www.ft.com
As I write this article the Senate has passed the $700bn bailout package. There is also general unanimity to increase the limit upto which bank deposits are insured upto $250000. Yet all this only reflects the effect of politics on the economy. There is also pressure to allow banks to measure financial assets by suspending the use of fair value and the SEC has indeed recently issued guidance in this regard. All this will not restore the credit markets and in this analysis I argue why in my opinion the present situation is just a beginning and a lot more needs to be done to restore confidence in credit and financial markets - most of this needs to be done by the market participants themselves.
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The Banking Crisis - A renewed role for the IMF - Will we have a renewed Bretton Woods System?
October 7, 2008
Another Top European Bank Falters | news.bbc.co.uk
The present banking crisis provides an opportunity for the Bretton Woods twins and especially the IMF to prove their relevance in the 21st century. The past few years had seen the eclipse of these two institutions with reduced relevance. The new situation which resembles to a great extent that which existed in the early parts of the last century with problems of flight of capital, wars, non-existent security etc. which had given rise to the concept of SDR's - these are rarely discussed these days. The problems of balance of payments and trade are also not discussed in the same vein as they were say in the days of Alfred Marshall. In this analysis I take a look at why the banking crisis requires the IMF to work in tandem with governments and Central Banks.
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Fair Value - The Bankers Blame It for Their Woes - The Familiar Blame Game
September 29, 2008
ABA Levels New Blast at Fair Value | www.cfo.com
When the going gets tough deflect the blame. That's an age old tactic. The banks and the global financial system are in a mess. The mess has been created by "easy credit" and now the bankers want to blame accounting rules and the concept of fair value. This is like going back a 100 years in accounting. It is the stratagem used by defenceless managements when their bluff has been called and exposed. In this analysis I examine why fair value should be used for measuring the value of assets especially in the case of financial instruments. I also argue that it is not right for the banks to ask the regulators to tell them how to arrive at fair value. This is their job. Simply because their access to capital and their profitability is affected is no reason for using intrinsic value which is easy to manoeuvre.
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September 22, 2008
Punctured Bubblenomics- Understanding the Shrinking Economy | www.nytimes.com
As I look at the troubles facing the financial world and global economy as a bystander and a involved person (as a finance professional) I actually see a certain amount of humor in the entire situation. Monetary policy during the last few years did not follow the basics which I learnt at college, accounting got embroiled in politics. The number of esoteric instruments being invented were just too many. In several cases these instruments were designed to get around rules which would have brought out their fair value. Those who blame fair value should instead blame the managements of institutions which were always trying to outmaneuver the market instead of improving productivity and generating real wealth. In this analysis I look at these various conundrums from an accounting and earnings perspective.
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Risk management in Troubled Times - Comparative anaysis at Merriyl and Lehman
September 22, 2008
Death and Near-Death Experiences on Wall St. | www.nytimes.com
The referred article is a great comparative between the strategies followed by Merriyl and Lehman respectively. While Merriyl Lynch was constantly considering strategies to overcome the liquidity crisis, Lehman was basking in its past. Merriyl was considering the basic tenets of risk management, Lehman considered it had no risk. Merriyl carried out a regular effective SWOT analysis while Lehman did not consider it necessary. In this analysis I look at the basic tenets of risk management. I also argue that while we are going to see an improvement in the financial market confidence, yet the Federal Government policies are misguided and the number of threats for financial institutions far outweigh the positives.
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The Finance Manager - What Happens When the Going Gets Tough - Changing and Emerging Role
September 18, 2008
New AIG Chief Liddy has Finance in His Blood | www.cfo.com
The present banking crisis is once again bringing out the importance which prudent financial management plays in wealth creation and maintenance. Till now it was profits, sales targets and gross billing which was important. The growth and continuing existence of the organization was taken as given. This was both at the macro and micro level. A finance manager who urged caution or an auditor who had reservations on a financial statement was considered to be a unnecessary stumbling block. Now that honored names on the corporate scoreboard are collapsing the existence of organizations is becoming more important. Concepts like internal controls, proper valuation of assets/liabilities and returns on investment are more important. In this analysis I take a look at this new emerging trend where finance is gaining importance in a tough environment.
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AIG - Northern Rock -Freddie - Fannie - Bear Stearns - A Look at Changing Times
September 17, 2008
Fed Tentatively Agrees to Provide $85bn to AIG | www.washingtonpost.com
The Fed gets more confused every day.One day it says no bailouts the next day it reverses course. The latest being in the case of AIG which has virtually been nationalized. The trend of Northern Rock (UK) and then Bear Stearns, Freddie, Fannie and now AIG is completely straight forward. The only exception was in the case of Lehman which did not receive support. I wonder why? Yet the present scenario is one where the Fed has said no more inflation control - liquidity and stability is more important. These are changing and financially confusing times. In this analysis I look at where this confusion is headed.
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The Global Financial Collapse - The Coming Revival? - Should We Expect More?
September 17, 2008
New York Allows AIG To Lend Itself Money | www.nytimes.com
The talk is as if Armageddon has arrived. A number of Institutions have collapsed or are looking for lifelines. The situation is bad but not alarming. Since September 2006 I have been arguing in these columns that the skyline was not bright and especially so since March 2007 - much against the considered wisdom. The present situation to my mind is one where most of those who had to collapse have done so. The time has come to pick up the pieces. The authorities should regulate without interfering with market forces. The situation is only bound to be brighter. I reason below the basis for my opinion.
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Lehman Bros - The Problems with Banking - 100 Years Down the Line - No Solutions?
September 15, 2008
U.S Gives Banks Urgent Warning to Solve Crisis | www.nytimes.com
100 years since the panic of 1907 the banking system is looking for another white knight. In the meantime we have had the breakdown of the gold standard, the breakdown of bretton woods, the curse of inflation and stagflation yet there appears no permanent cure for recurring financial crisis. Yet the situation is not as bad as it appears. The world has made great progress during this period with rising productivity levels. In this analysis I look at this particular conundrum and where we are possibly headed.
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Lehman Bros and Systemic Problems in Financial Markets - Asset Values and Regulatory Responses
September 11, 2008
Wall Street's Fears on Lehman Bros Batter Markets | www.nytimes.com
The financial problems of Lehman point to major system problems. In the context of support from the Fed, Lehman is looking at a loss of $3.9bn. Any problem which is based on the substratum of the business can not get rectified unless the basic tenets of the business change. While Lehman has a chequered history of 150+ years yet the past is not a indication of the future and the recent collapse of Bear Stearns amply bears that out.I look here at how the problems at Lehman are indicative of systemic problems and wil have a impact on asset values in the context of confused regulatory response.
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