Foreign Financial Statement Rules

[Running_Man]

https://www.bloomberg.com/news/artic...cial-reporting

Here is a bloomberg article that highlights the problem with many foreign companies - there is little protection for investors on reporting of financial results. Companies that report they have 15-25 times the amount of cash on hand versus short term debt needed to pay suddenly have gone bankrupt.

[OldShooter]

Quote:

Originally Posted by Running_Man https://www.bloomberg.com/news/artic...cial-reporting Here is a bloomberg article that highlights the problem with many foreign companies - there is little protection for investors on reporting of financial results. Companies that report they have 15-25 times the amount of cash on hand versus short term debt needed to pay suddenly have gone bankrupt.

No. It is an article about one Chinese company and a brief warning about Chinese junk bonds. Old news basically and hardly impugning "many foreign companies." It's a big world out there.

[Spock]

Forget foreign companies. How about US companies going directly from investment grade ratings to bankruptcy.

[OldShooter]

FWIW, here is a little more on international accounting standards: https://europe.unc.edu/files/2016/11...dards_2007.pdf Here's the first paragraph:

The International Accounting Standards Board (IASB) is at the center of the global convergence in accounting standards. The IASB is a privately funded non-governmental organization located in London. Its mission is to develop rules and principles for financial reporting that could apply around the world. While acceptance of these rules is not mandatory, it is nevertheless widespread. There are currently close to 100 countries that have adopted or are officially committed to adopting the IASB’s international financial reporting standards (IFRS) for the preparation and reporting of financial statements by companies with shares held by the public. This list of countries includes Australia, Canada, China, the member-states of the European Union (EU), Japan, New Zealand, Russia, and South Africa. Although the United States is not committed to adopting IFRS, it has accepted to work together with the IASB in order to harmonize US accounting standards (known as Generally Accepted Accounting Principles [GAAP]) with IFRS.

If anything, the US may be a slight laggard.

To @spock's point, good accounting standards by themselves don't guarantee anything no matter where you are in the world. But they are a good first step.

[pb4uski]

Quote:

Originally Posted by OldShooter ....If anything, the US may be a slight laggard. ...

As someone who spent much of my career immersed in the financial accounting standards setting process and practicing internationally to help non-US clients list their shares in the US which required them to prepare US GAAP financial statements, I would have to respectfully disagree.

IMO, the US is the leader, not the laggard. While all standard setting is political by its very nature, IFRS is much more political than US GAAP. There is much more lattitude in IFRS than in US GAAP, which is part of the reason that convergence has been so difficult.

[pb4uski]

Quote:

Originally Posted by Running_Man https://www.bloomberg.com/news/artic...cial-reporting Here is a bloomberg article that highlights the problem with many foreign companies - there is little protection for investors on reporting of financial results. Companies that report they have 15-25 times the amount of cash on hand versus short term debt needed to pay suddenly have gone bankrupt.

You're painting with a very wide brush.... the article relates to some lower rated Chinese companies... not foreign companies in general.

[OldShooter]

Quote:

Originally Posted by pb4uski As someone who spent much of my career immersed in the financial accounting standards setting process and practicing internationally to help non-US clients list their shares in the US which required them to prepare US GAAP financial statements, I would have to respectfully disagree. IMO, the US is the leader, not the laggard. While all standard setting is political by its very nature, IFRS is much more political than US GAAP. There is much more lattitude in IFRS than in US GAAP, which is part of the reason that convergence has been so difficult.

OK, thanks. I am always glad to see you weigh in on a thread and happily defer to your expertise. (I did hedge my bet with "may.") I guess I might have been unconsciously thinking of MiFID II, which is another thread completely.

But the more important point here is that when one leaves the shore of the US he/she is not stepping into a vast accounting swamp populated by alligators.

[Sunset]

Quote:

Originally Posted by OldShooter ... To @spock's point, good accounting standards by themselves don't guarantee anything no matter where you are in the world. But they are a good first step.

Like Enron, or Bernie Madoff proved fairly well....

[Running_Man]

It was two companies mentioned there and the company had 2 billion in cash in their quarterly financial statement, and was unable to early December to pay 156 million on their debt. As a reference this is about 1/2 the cash that Exxon Mobil has on their balance sheet. Kangde Xin as recently as last year was ranked #47 on the Forbes most innovative companies in the world. They would place about 287 in the Fortune 500 and have sales right with WW Grainger. This is not some "lower rated company".

Investment grade ratings and financial reporting are not directly related. It has been revealed by the 2007/8/9 financial crisis that rating agencies are not a real time indicator of financial health but more of a guideline for starting research on companies. But I assume Spock you are referring to PG&E and this did not have anything to do with not having cash on their balance sheet but the estimates of the cost of the California fires in excess of insurance. And in any case this risk was clearly stated in their annual report of 2017 as they already had a similar issue. It has been 8 years since an investment grade company went straight to default in the US.

Until 2006 China Accounting standard made reporting debt optional for Chinese companies. There are presently 85 companies in China that utilize IFRS, most utilize Hong Kong Financial Standards.