The U.S. Supreme Court left intact Jeffrey Skilling’s conviction for leading the Enron Corp. accounting fraud, refusing to grant a second hearing to the imprisoned former chief executive officer.
Today’s rebuff leaves Skilling with nothing to show for his victory at the Supreme Court in 2010, when the justices said prosecutors used an improper legal theory to convict him. A federal appeals court then reaffirmed his 19-count conviction, saying the verdict would have been the same regardless.
Skilling is serving a 24-year sentence in a federal prison in Colorado after he and former Enron Chairman Kenneth Lay were found guilty of deceiving investors about the company’s true financial condition. Lay died in 2006.
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Showing posts with label ifrs. Show all posts
Showing posts with label ifrs. Show all posts
Monday, April 16, 2012
Saturday, February 18, 2012
Aluminum surplus only rivals natural gas surplus!!!
Rio Tinto PLC (RIO)'s 2011 profit was dragged down by a US$9.29 billion impairment charge mainly against the value of its struggling aluminum business .
The company booked an US$8.86 billion charge to reflect a fall in the value of its aluminum assets, plus a smaller impairment charge for its diamonds business in anticipation of higher costs to complete underground development of a key mine. The charges pushed Rio to a loss for the second half of the year of about US$1.76 billion from a profit of US$8.39 billion a year earlier.
"The current environment in the aluminum industry is tough," Albanese said, pointing to low prices and rising costs, compounded by running surpluses for the industry over the past five years.
The company booked an US$8.86 billion charge to reflect a fall in the value of its aluminum assets, plus a smaller impairment charge for its diamonds business in anticipation of higher costs to complete underground development of a key mine. The charges pushed Rio to a loss for the second half of the year of about US$1.76 billion from a profit of US$8.39 billion a year earlier.
"The current environment in the aluminum industry is tough," Albanese said, pointing to low prices and rising costs, compounded by running surpluses for the industry over the past five years.
Thursday, February 16, 2012
North American Natural Gas Producers = Write-off, Impairment, Write-Down Season...
Many exploration and production companies have taken impairment charges during the most recent quarter as they write down the value of natural gas properties. This trend will probably continue in 2012.
Impairments
Anadarko Petroleum (NYSE:APC) recorded a $1.5 billion pretax noncash charge in the fourth quarter of 2011, related to the impairment of coal bed methane properties in the Powder River Basin. The write down was caused by low natural gas prices and came to $1 billion on an after tax basis. The company said that the write down did not reduce its proved reserve total.
Anadarko Petroleum (NYSE:APC) recorded a $1.5 billion pretax noncash charge in the fourth quarter of 2011, related to the impairment of coal bed methane properties in the Powder River Basin. The write down was caused by low natural gas prices and came to $1 billion on an after tax basis. The company said that the write down did not reduce its proved reserve total.
Conoco Phillips (NYSE:COP) reported a $190 million impairment for various natural gas properties in Canada. The company also wrote down $44 million of properties in its United States exploration and production segment, but did not give further details on these properties.
Pioneer Natural Resources (NYSE:PXD) reported an after tax noncash charge of $223 million, or $1.83 per diluted share in the fourth quarter of 2011. The write off was related to the company's properties in the Edwards trend play in Texas.
The Edwards play is present on the company's acreage in south Texas and lies below the Eagle Ford Shale in many areas. The company used to be very active in this play, and as recently as the first half of 2008, drilled 22 wells into this dry gas formation. The company suspended drilling in the Edwards trend in 2009. It also wrote off $20 million in unproved dry gas properties in other areas of its portfolio.
Comstock Resources (NYSE:CRK) also suffered from the decline in natural gas prices, and recorded a fourth quarter pretax impairment charge of $60.8 million related to its proved natural gas properties. On an after tax basis the write down was $39.5 million, or 86 cents per share.
Comstock didn't say where the impaired properties were located, but the company recently suspended operated drilling activity in the Haynesville Shale. The company plans to end development here by March 2012.
It has been very active in the Haynesville Shale over the last few years, and has drilled 180 gross wells here since entering the play in 2008.
The Bottom Line
Most exploration and production companies tend to downplay impairment charges as non-charge accounting items and bury them deep in the footnotes of financial statements.
Most exploration and production companies tend to downplay impairment charges as non-charge accounting items and bury them deep in the footnotes of financial statements.
Thursday, January 12, 2012
IFRS: Who Commits Financial Fraud and Why? (The why is simple = self interest)
There are three groups of business people who commit financial statement frauds. They range from senior management (CEO and CFO); mid- and lower-level management; and organizational criminals.
CEOs and CFOs commit accounting frauds to conceal true business performance, to preserve personal status and control and to maintain personal income and wealth. Mid- and lower-level employees falsify financial statements related to their area of responsibility (subsidiary, division or other unit) to conceal poor performance and/or to earn performance-based bonuses. Organizational criminals falsify financial statements to obtain loans or to inflate a stock they plan to sell in a "pump-and-dump" scheme.
Methods of financial statement schemes range from fictitious or fabricated revenues; altering the times at which revenues are recognized; improper asset valuations and reporting; concealing liabilities and expenses; and improper financial statement disclosures.
CEOs and CFOs commit accounting frauds to conceal true business performance, to preserve personal status and control and to maintain personal income and wealth. Mid- and lower-level employees falsify financial statements related to their area of responsibility (subsidiary, division or other unit) to conceal poor performance and/or to earn performance-based bonuses. Organizational criminals falsify financial statements to obtain loans or to inflate a stock they plan to sell in a "pump-and-dump" scheme.
Methods of financial statement schemes range from fictitious or fabricated revenues; altering the times at which revenues are recognized; improper asset valuations and reporting; concealing liabilities and expenses; and improper financial statement disclosures.
Tuesday, January 10, 2012
IAS 36 Impairment Testing (Forecasts & Discount Rates)
Relies on forecasts and discount rates for impairment testing both can be heavily influenced by board’s/management to the detriment of shareholders.
Unlike the cash flows used in an impairment test that are entity specific, the discount rate is supposed to appropriately reflect the current market assessment of the time value of money and the risks specific to the asset or CGU (cash generating unit).
When a specific rate for an asset or CGU is not directly available from the market, which is usually the case, the entity’s Weighted Average Cost of Capital (WACC), the entity’s incremental borrowing rate or other market rates can be used as a starting point. While not prescribed, WACC is by far the most commonly used base for the discount rate.
Cost of equity
The cost of equity is the most difficult component of the cost of capital to determine and one that is subject to considerable debate by experts.
One issue is the financial crisis and recession has increased equity risk. This is an element of the WACC for which it is advisable to obtain independent expert advice on to ensure consistency with the other assumptions in the impairment test.
For Example regarding Forecasts
Management has recently approved a stretch forecast that shows production rising from 14,000 units to 20,000 units over five years. Recent years have demonstrated a track record of undershooting stretch forecasts. Analysts covering the sector are assuming that production will only rise marginally over the next few years due to forecast weaknesses in demand, together with oversupply in the market. Should the most recently approved forecast be used without adjustment?
Solution
The approved forecast appears to be neither reasonable nor supportable. The forecasts will need to be adjusted based on the entity’s historic record of meeting projections and external evidence.
For Example regarding Discount Rates
How is the appropriate pre-tax discount rate for a VIU (Value in Use) calculation determined from a post-tax starting point?
The following two-step approach can be applied to derive iteratively the implicit pre-tax discount rate from post-tax data. This pre-tax rate is applied to the discounted cash flows that are the basis of the VIU:
Step 1
From pre-tax cash flow projections, the expected actual tax cash payments are calculated to arrive at post-tax cash flows. These post-tax cash flows are discounted at an appropriate post-tax discount rate derived using information observable on the capital markets.
Step 2
The pre-tax discount rate is derived by determining the rate required to be applied to the pre-tax cash flows to arrive at the result obtained in step 1 (ie, same methodology used for computing an internal rate of return).
Fair value less costs to sell
When there is neither a binding sale agreement nor an active market, FVLCTS may be estimated as the amount that the entity could obtain from disposal of the asset in an arm’s length transaction based on data from recent market transactions. Discounted cash flow techniques may be used in estimating the fair value of the asset.
Unlike the cash flows used in an impairment test that are entity specific, the discount rate is supposed to appropriately reflect the current market assessment of the time value of money and the risks specific to the asset or CGU (cash generating unit).
When a specific rate for an asset or CGU is not directly available from the market, which is usually the case, the entity’s Weighted Average Cost of Capital (WACC), the entity’s incremental borrowing rate or other market rates can be used as a starting point. While not prescribed, WACC is by far the most commonly used base for the discount rate.
Cost of equity
The cost of equity is the most difficult component of the cost of capital to determine and one that is subject to considerable debate by experts.
One issue is the financial crisis and recession has increased equity risk. This is an element of the WACC for which it is advisable to obtain independent expert advice on to ensure consistency with the other assumptions in the impairment test.
For Example regarding Forecasts
Management has recently approved a stretch forecast that shows production rising from 14,000 units to 20,000 units over five years. Recent years have demonstrated a track record of undershooting stretch forecasts. Analysts covering the sector are assuming that production will only rise marginally over the next few years due to forecast weaknesses in demand, together with oversupply in the market. Should the most recently approved forecast be used without adjustment?
Solution
The approved forecast appears to be neither reasonable nor supportable. The forecasts will need to be adjusted based on the entity’s historic record of meeting projections and external evidence.
For Example regarding Discount Rates
How is the appropriate pre-tax discount rate for a VIU (Value in Use) calculation determined from a post-tax starting point?
The following two-step approach can be applied to derive iteratively the implicit pre-tax discount rate from post-tax data. This pre-tax rate is applied to the discounted cash flows that are the basis of the VIU:
Step 1
From pre-tax cash flow projections, the expected actual tax cash payments are calculated to arrive at post-tax cash flows. These post-tax cash flows are discounted at an appropriate post-tax discount rate derived using information observable on the capital markets.
Step 2
The pre-tax discount rate is derived by determining the rate required to be applied to the pre-tax cash flows to arrive at the result obtained in step 1 (ie, same methodology used for computing an internal rate of return).
Fair value less costs to sell
When there is neither a binding sale agreement nor an active market, FVLCTS may be estimated as the amount that the entity could obtain from disposal of the asset in an arm’s length transaction based on data from recent market transactions. Discounted cash flow techniques may be used in estimating the fair value of the asset.
Sunday, January 8, 2012
Alcoa to Close or Curtail 531,000 Metric Tons of Aluminum Smelting Capacity as Aluminum Prices are off 27% from 2011 peak.
Alcoa (NYSE: AA) announced today that it intends to close or curtail approximately 531,000 metric tons, or 12 percent of its global smelting capacity, to lower the Company’s position on the global aluminum cost curve and improve Alcoa’s competitiveness.
The Company will permanently close its smelter in Alcoa, Tennessee, which was curtailed in 2009, along with two of the six idled potlines at its Rockdale, Texas smelter. Together, these closures will reduce Alcoa’s global smelting capacity of 4.5 million metric tons per year by 291,000 metric tons, or about 7 percent.
The curtailments, to be announced in the near future, will reduce Alcoa’s global smelting capacity by an additional 240,000 metric tons, or about 5 percent.
“These are difficult but necessary steps to improve Alcoa’s competitiveness, preserve and grow shareholder value and protect jobs in the rest of the Alcoa system,” said Alcoa Chairman and CEO Klaus Kleinfeld.
Aluminum prices have fallen more than 27 percent from their peak in 2011. In addition to the curtailments, the Company will accelerate actions to reduce the escalating cost of raw materials.
Kleinfeld added that Alcoa will work with all affected communities to explore ways to redevelop closed facilities and will consult with employees and work unions/councils impacted by curtailments. “We recognize our responsibility to the people and communities of the affected facilities,” he said.
The curtailments are expected to be complete by the first half of 2012. Alcoa’s alumina production will be reduced across the global refining system to reflect the final curtailments in smelting as well as prevailing market conditions. The curtailments will contribute to the Company’s long-term goal of lowering Alcoa’s position on the world aluminum production cost curve by 10 percentage points.
Total restructuring-related charges for fourth quarter 2011, principally composed of the above actions, are expected to be between $155 million and $165 million after-tax, or $0.15 to $0.16 per share, of which approximately 60 percent is non-cash.
The Company will permanently close its smelter in Alcoa, Tennessee, which was curtailed in 2009, along with two of the six idled potlines at its Rockdale, Texas smelter. Together, these closures will reduce Alcoa’s global smelting capacity of 4.5 million metric tons per year by 291,000 metric tons, or about 7 percent.
The curtailments, to be announced in the near future, will reduce Alcoa’s global smelting capacity by an additional 240,000 metric tons, or about 5 percent.
“These are difficult but necessary steps to improve Alcoa’s competitiveness, preserve and grow shareholder value and protect jobs in the rest of the Alcoa system,” said Alcoa Chairman and CEO Klaus Kleinfeld.
Aluminum prices have fallen more than 27 percent from their peak in 2011. In addition to the curtailments, the Company will accelerate actions to reduce the escalating cost of raw materials.
Kleinfeld added that Alcoa will work with all affected communities to explore ways to redevelop closed facilities and will consult with employees and work unions/councils impacted by curtailments. “We recognize our responsibility to the people and communities of the affected facilities,” he said.
The curtailments are expected to be complete by the first half of 2012. Alcoa’s alumina production will be reduced across the global refining system to reflect the final curtailments in smelting as well as prevailing market conditions. The curtailments will contribute to the Company’s long-term goal of lowering Alcoa’s position on the world aluminum production cost curve by 10 percentage points.
Total restructuring-related charges for fourth quarter 2011, principally composed of the above actions, are expected to be between $155 million and $165 million after-tax, or $0.15 to $0.16 per share, of which approximately 60 percent is non-cash.
IFRS IAS 36!!! The big bad COP of the accounting world drives into town on North American Natural Gas Reserves.
North American Natural Gas reserves will be under serious pressure this closing fiscal year. For those firms with all-in FD&A costs in excess of $18/boe or $3/mmbtu the need to apply IAS 36 strictly is a certainty.
The purpose of the impairment review, which applies to all intangible and tangible oil and gas assets, indefinite life assets and goodwill, is to ascertain that the carrying value of the assets does not exceed their recoverable amount. Under IAS 36, “recoverable amount” is defined as the higher of fair value less costs to sell (FVLCTS) and value in use (VIU). If either recoverable amount exceeds the asset’s carrying value, no impairment exists and no write-down is necessary.
FVLCTS is generally recognized as a valuation based on the potential sale of an asset, i.e., the amount that would be obtained from the sale of the asset in an arm’s length transaction betweenknowledgeable willing parties less disposal costs.
VIU is defined in terms of discounted cash flow, i.e., the present value of the future cash flows to the entity generated through utilization of an asset throughout its life plus proceeds from eventual disposition. Selection of an appropriate discount rate under IAS 36 definitions is an important consideration in completing a VIU impairment test. VIU is an entity-specific value that permits consideration of synergies; however, IAS 36 is restrictive in the cash flows and other inputs that may be used in the valuation.
Principles
There are two standards that address impairment within the upstream oil and gas industry:
• IFRS 6 “Exploration for and Evaluation of Mineral Resources”, which is applicable only in respect of exploration and evaluation (E&E) assets — see Section 1, and
• IAS 36, which is applicable to intangible and tangible oil and gas assets (except E&E assets), intangible assets with an indefinite life and goodwill.
The purpose of the impairment review, which applies to all intangible and tangible oil and gas assets, indefinite life assets and goodwill, is to ascertain that the carrying value of the assets does not exceed their recoverable amount. Under IAS 36, “recoverable amount” is defined as the higher of fair value less costs to sell (FVLCTS) and value in use (VIU). If either recoverable amount exceeds the asset’s carrying value, no impairment exists and no write-down is necessary.
FVLCTS is generally recognized as a valuation based on the potential sale of an asset, i.e., the amount that would be obtained from the sale of the asset in an arm’s length transaction betweenknowledgeable willing parties less disposal costs.
VIU is defined in terms of discounted cash flow, i.e., the present value of the future cash flows to the entity generated through utilization of an asset throughout its life plus proceeds from eventual disposition. Selection of an appropriate discount rate under IAS 36 definitions is an important consideration in completing a VIU impairment test. VIU is an entity-specific value that permits consideration of synergies; however, IAS 36 is restrictive in the cash flows and other inputs that may be used in the valuation.
Principles
There are two standards that address impairment within the upstream oil and gas industry:
• IFRS 6 “Exploration for and Evaluation of Mineral Resources”, which is applicable only in respect of exploration and evaluation (E&E) assets — see Section 1, and
• IAS 36, which is applicable to intangible and tangible oil and gas assets (except E&E assets), intangible assets with an indefinite life and goodwill.
Thursday, September 8, 2011
If you have nothing to (hide) transparency is your friend!
The U.S. Securities and Exchange Commission filed an enforcement action against Shanghai-based Deloitte Touche Tohmatsu CPA Ltd. for failing to produce documents related to an investigation of its former auditing client Longtop Financial Technologies Limited.
D&T Shanghai hasn’t provided any documents to the SEC, which issued subpoenas to the firm on May 27, the agency said in a statement today, citing a filing in U.S. District Court in Washington. As a result, the SEC has been unable to access “critical” information in its probe of possible fraud at Longtop, the statement said.
Longtop, based in Hong Kong, said in May that D&T Shanghai quit because of errors in the company’s financial records. The SEC also began an investigation. In July, the SEC and Public Company Accounting Oversight Board met with counterparts in China to discuss cross-border oversight.
Today’s action “essentially is a battle between the SEC and Chinese regulators forcing D&T Shanghai to assert Chinese law as an explanation for why it cannot produce records,” Jacob Frenkel, a former SEC lawyer now with Shulman Rogers Gandal Pordy & Ecker PA in Potomac, Maryland, said in an interview. “Auditing firms know that the SEC has the right to subpoena and review and consider audit work papers. This is about bringing to a head the dispute over access to information relating to audits of Chinese companies.”
In order to compete fairly we must have transparency; otherwise we'll all be guilty of doping our domestic businesses to the detriment of the competion.
D&T Shanghai hasn’t provided any documents to the SEC, which issued subpoenas to the firm on May 27, the agency said in a statement today, citing a filing in U.S. District Court in Washington. As a result, the SEC has been unable to access “critical” information in its probe of possible fraud at Longtop, the statement said.
Longtop, based in Hong Kong, said in May that D&T Shanghai quit because of errors in the company’s financial records. The SEC also began an investigation. In July, the SEC and Public Company Accounting Oversight Board met with counterparts in China to discuss cross-border oversight.
Today’s action “essentially is a battle between the SEC and Chinese regulators forcing D&T Shanghai to assert Chinese law as an explanation for why it cannot produce records,” Jacob Frenkel, a former SEC lawyer now with Shulman Rogers Gandal Pordy & Ecker PA in Potomac, Maryland, said in an interview. “Auditing firms know that the SEC has the right to subpoena and review and consider audit work papers. This is about bringing to a head the dispute over access to information relating to audits of Chinese companies.”
In order to compete fairly we must have transparency; otherwise we'll all be guilty of doping our domestic businesses to the detriment of the competion.
Sunday, August 21, 2011
It's all in the numbers
SinoTech Energy Ltd. (CTE), a provider of equipment to boost oilfield production, was sued in the U.S. by an investor claiming securities violations after its shares plummeted.
Investor Bhushan Athale alleges that Beijing-based SinoTech’s financial reports were “inaccurate because the nature, size and scope of the company’s business was materially exaggerated,” according to a complaint filed yesterday in Manhattan federal court. Athale is seeking to sue on behalf of buyers of the company’s American depositary shares since its November initial public offering.
SinoTech plunged 42 percent to $2.35 on the Nasdaq Stock Market on Aug. 16 after Alfredlittle.com published a short- seller’s note saying the company’s largest customers were probably “nothing more than empty shells” and that it’s worth less than 63 cents a share. SinoTech called the note “inaccurate and defamatory.”
Trading has been halted in the shares and the company said in a statement yesterday that it intends to “cooperate fully” with Nasdaq to address the stock market’s concerns. The trading halt has rendered the ADS “essentially worthless,” Athale said in the complaint.
Rebecca Guo, a spokeswoman for the company in Beijing, didn’t return a phone call or respond to an e-mail placed to her office outside business hours in China seeking comment on the lawsuit.
In an Aug. 17 statement, the company said it wasn’t aware of material omissions in its financial statements and that it had appointed an independent committee to investigate.
“We are outraged by this blatantly self-interested, mercenary attempt to profiteer at the expense of SinoTech and its shareholders,” Chief Executive Officer Xin Guoqiang said in the Aug. 17 statement.
The case is Athale v. SinoTech Energy Ltd., 11-CV-5831, U.S. District Court, Southern District of New York (Manhattan).
Investor Bhushan Athale alleges that Beijing-based SinoTech’s financial reports were “inaccurate because the nature, size and scope of the company’s business was materially exaggerated,” according to a complaint filed yesterday in Manhattan federal court. Athale is seeking to sue on behalf of buyers of the company’s American depositary shares since its November initial public offering.
SinoTech plunged 42 percent to $2.35 on the Nasdaq Stock Market on Aug. 16 after Alfredlittle.com published a short- seller’s note saying the company’s largest customers were probably “nothing more than empty shells” and that it’s worth less than 63 cents a share. SinoTech called the note “inaccurate and defamatory.”
Trading has been halted in the shares and the company said in a statement yesterday that it intends to “cooperate fully” with Nasdaq to address the stock market’s concerns. The trading halt has rendered the ADS “essentially worthless,” Athale said in the complaint.
Rebecca Guo, a spokeswoman for the company in Beijing, didn’t return a phone call or respond to an e-mail placed to her office outside business hours in China seeking comment on the lawsuit.
In an Aug. 17 statement, the company said it wasn’t aware of material omissions in its financial statements and that it had appointed an independent committee to investigate.
“We are outraged by this blatantly self-interested, mercenary attempt to profiteer at the expense of SinoTech and its shareholders,” Chief Executive Officer Xin Guoqiang said in the Aug. 17 statement.
The case is Athale v. SinoTech Energy Ltd., 11-CV-5831, U.S. District Court, Southern District of New York (Manhattan).
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