Accounting warnings: signs and signals:
1. Profit & EPS overstatement:
a. BD Thai Aluminium:
In the year 2007 EPS was shown as tk -22, and within 1 year, in 2008, EPS was shown tk 32. Mechanism:
* Inclusion of unrealized gain resulting from revaluation of assets in the earnings. b. GMG Airlines:
After consecutive losses during the period of 1998 to 2005, the net profit of the company was shown positive in 2006 and very significantly increasing from 2007 to 2010. Mechanism:
* Charging no depreciation on addition of aircraft referring referring it as their “accounting policy” * Inclusion of unrealized gain resulting from revaluation of assets in the earnings. c. Chittagong Vegetables:
In the year 2009 EPS was shown as tk -23.60, and within 1 year, in 2010, EPS was shown tk 21.69. Mechanism:
* “Furnished” Financial Statements.
d. Beach Hatchery Ltd.:
Net income for the year 2007 was shown as tk. 3,20,000 and that for the year 2008 was tk. 3,49,00,000 which is almost 45 times higher. Mechanism:
* Non-transparent accounting disclosure
2. NAV overstatement:
e. BD Thai Aluminium:
In the year 2008, NAV per share was shown as much as 18 times more than that of 2007. Mechanism:
* Revaluation of assets
f. BD Weldings:
The company overstated the NAV in the year 2010.
* In January the co revaluated its assets and it increased the net assets by tk 15 crore. The Company again revaluated its assets in April and this time the net assets increased by tk 45 crore.
3. IPO Overpricing:
Indicative Price for direct listing was tk 162 per share as per bidding (9 times of the NAV per share during that time). But the offer price was tk. 194.25 per share which is at the maximum borderline (20%) of the indicative price. Suspected Mechanism:
* Mutual collusion among the offerer and the participants through financial incentives.
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