http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ammgS5Pc.Nuc
Summary
Tata Motor Ltd., Indian Jaguar Land Rover's Owner, seeked to raise 300 millsion by listing GDR on the Luxembourg stock exchange. . The new shares were offered at $12.54,which was equivalent to 580.34 rupee per common share. In 2008, when the financial crisis detonated, Tata motor Ltd. realized it was a great opportunity for them to expand their business as three auto big heads were suffering because of the recession. Tata purchased Jaguar at a cost of 2.5 billion from Ford Motor Inc, one of the U.S. auto big heads. Tata's action of issuing its share has taken an "advantage of surging demand for Indian Stocks". This decision will not only unload some of their heaving debt, but also provide the company with greater flexibility. Due the positive share sales incentive, Tata rose 5.5% to 589.25 Rupee on yesterday.
Connection
Tata Motor issued approximately 2 millions of shares in the market to generate new fund in shareholders' equity. This is a financing activity which will be shown in the cash flow statement. Both the bank account and retained earning section of the balance sheet will increase because of that. However, since most of this fund will be contributed toward the debt that Tata has created when they acquired Jaguar from Ford Motor, there might also be a sudden decrease in the cash account and account payable. There is no net change to the equation of Asset= Liabilities + Shareholders' equity. The accounting equation is maintained in this case.
Reflection
Tata motor Ltd. was famous for its cheap cars like the recently released $2500 nano cars. It has bought Jaguar Land Rover from Ford in 2008. Jaguar and Land Rovers are luxury and SUV, 4 *4 cars respectively. Because of the economic downfall, demand for these expensive or oil-consuming cars decrease. Tata motors bought this company because they thought when the economy gets better, demands for these cars will climb up again. Acquisition for Jaguar land rover was cheaper comparing to other period of time, but nonetheless, it is a very risky decision as the market has lots of substitutions for such vehicles and it has also created a heavy loan for them. Fortunately, their new issue of shares will ease off the pressure of this heavy loan.
Thursday, October 8, 2009
Thursday, September 17, 2009
Accouting System
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aot0_R72kBiw
Sept. 16- A Hong Kong Accounting firm Ernst & Young has been charged to be using "false documents" in Akai Holding Ltd's audit works. Mark Hapgood, the representative of Ernst & Young denied the charge and claimed "it breached its obligations as an auditor" for Akai. However, the Lawyer representing the liquidator of Akai Holding Ltd, Leslie Kosmin, questioned the accounting firm's reliability by indicating alterations of financial documents after they have been dated. Hapgood refused to admit any of the charges and claimed all their report have been reviewed and proven by experts. Judge William stone “said he was surprise by the allegation of fraud”.
Connection
Under the principle of GAAP, financial statements prepared by public-traded businesses must be verified by independent auditors to ensure investors are receiving accurate and correct information about the company. Auditors from Ernst & Young were accused they had failed to verify the fraud in the financial statement of Akai Holding Ltd. For example, Kosmin indicated the lack of proof that Akai’s ownership of lands in Germany and Japan. Land is part of asset and the asset value will significantly increase because lands are usually valuable. This false reflection of asset might mislead investors. Auditors hold a strong responsibility to maintain fairness in the market.
Reflection
I was first surprised that Ernst and Young, one of the biggest accounting firms in the world, was accused of using false documents in their auditing. Later I realize that it is not impossible for such big firm to conduct such unethical act. Money is the biggest motivator for people, even professional ones, to commit a crime. The false use of documents might lead to bankruptcy of thousand investors. It is extremely selfish to consider only one’s benefit but ignore others’. Auditor isn’t just a job; it is a protection that protects investors’ benefit. If this protection is penetrated because of money, investors will less likely to invest any of their money in the market. As a result, the economy shrinks. If each of us has less greed for wealth or fame, will the world be a better place?
Sept. 16- A Hong Kong Accounting firm Ernst & Young has been charged to be using "false documents" in Akai Holding Ltd's audit works. Mark Hapgood, the representative of Ernst & Young denied the charge and claimed "it breached its obligations as an auditor" for Akai. However, the Lawyer representing the liquidator of Akai Holding Ltd, Leslie Kosmin, questioned the accounting firm's reliability by indicating alterations of financial documents after they have been dated. Hapgood refused to admit any of the charges and claimed all their report have been reviewed and proven by experts. Judge William stone “said he was surprise by the allegation of fraud”.
Connection
Under the principle of GAAP, financial statements prepared by public-traded businesses must be verified by independent auditors to ensure investors are receiving accurate and correct information about the company. Auditors from Ernst & Young were accused they had failed to verify the fraud in the financial statement of Akai Holding Ltd. For example, Kosmin indicated the lack of proof that Akai’s ownership of lands in Germany and Japan. Land is part of asset and the asset value will significantly increase because lands are usually valuable. This false reflection of asset might mislead investors. Auditors hold a strong responsibility to maintain fairness in the market.
Reflection
I was first surprised that Ernst and Young, one of the biggest accounting firms in the world, was accused of using false documents in their auditing. Later I realize that it is not impossible for such big firm to conduct such unethical act. Money is the biggest motivator for people, even professional ones, to commit a crime. The false use of documents might lead to bankruptcy of thousand investors. It is extremely selfish to consider only one’s benefit but ignore others’. Auditor isn’t just a job; it is a protection that protects investors’ benefit. If this protection is penetrated because of money, investors will less likely to invest any of their money in the market. As a result, the economy shrinks. If each of us has less greed for wealth or fame, will the world be a better place?
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