Tough questions are expected on worries over recession, fraud
By JAMIE LEE 31 March 2009
(SINGAPORE) It’s that time of year again when shareholders gather for annual general meetings (AGM).
About 20 companies are set to meet their investors in the first wave of AGMs, with many more to follow, as companies with financial years ending Dec 31 hold their annual meetings.
The food may be good and the venues interesting - with some companies hosting their AGMs at the art museum and the national library - but the tough questions are expected to come thick and fast as shareholders quiz directors and managers on business prospects, management direction and company finances.
Investors should be especially concerned this year, as they are worried about poor financial performance and the recession, and are spooked by the fear of fraud after the Madoff scam in the US, the Satyam sham in India and a spat of local corporate scandals, market watchers said.
So what should shareholders look out for?
David Gerald, president of the Securities Investors Association of Singapore, said that minority investors should look through the financial accounts and scrutinise the status of account receivables, as well as the audit process for clients with large account receivables.
Shareholders should also check the date of maturity of debts and plans for debt financing, including talks with banks about loan renewals, Mr. Gerald said. ‘Is the cash safely held in established financial institutions and properly audited? Questions may even be directed at auditors present.’
Lawyer Robson Lee from Shook Lin & Bok said that investors should also question cash balances, especially when companies are hoarding a huge amount of cash but not paying dividends.
‘Companies which had earlier announced major transactions with representations of good prospects and earnings projections should be queried on the progress, particularly if there has been no update after the first announcement,’ he said. ‘Shareholders should be concerned if there has been a prior share placement or some other fund-raising exercise for a major transaction that did not take place.’
A change of auditor is another potential red flag. Ong Pang Thye, Asia-Pacific head of accounting advisory services at KPMG, said that shareholders should look at audit reports that may highlight certain issues regarding finances.
Based on Singapore’s accounting standards, auditors would put an ‘emphasis of matter’ if an issue warrants deeper discussion but does not affect the auditors’ opinion.
Matters that affect their opinion would be highlighted by way of a qualified opinion, a disclaimer of opinion or an adverse opinion - in order of severity.
‘The situation may have changed since the date of the audit report,’ said Mr. Ong, referring to any highlighted issue.
Investors should also ask how a company plans to ‘weather the storm’ of the economic crisis and seize opportunities to sustain the business.
As for unsatisfactory responses from companies to queries by the Singapore Exchange, Mr. Ong said: ‘I’m not sure that all non-answers are red flags, but it is something that shareholders could take up and follow through.’
Shareholder Dennis Distant told BT that he understands if companies cannot share information because it is privileged or price sensitive.
But he has a strategy to get some answers, he said. ‘Ask them during makan. They are more relaxed and they’ll talk more.’
1 comment:
AGM season kicks off
Tough questions are expected on worries over recession, fraud
By JAMIE LEE
31 March 2009
(SINGAPORE) It’s that time of year again when shareholders gather for annual general meetings (AGM).
About 20 companies are set to meet their investors in the first wave of AGMs, with many more to follow, as companies with financial years ending Dec 31 hold their annual meetings.
The food may be good and the venues interesting - with some companies hosting their AGMs at the art museum and the national library - but the tough questions are expected to come thick and fast as shareholders quiz directors and managers on business prospects, management direction and company finances.
Investors should be especially concerned this year, as they are worried about poor financial performance and the recession, and are spooked by the fear of fraud after the Madoff scam in the US, the Satyam sham in India and a spat of local corporate scandals, market watchers said.
So what should shareholders look out for?
David Gerald, president of the Securities Investors Association of Singapore, said that minority investors should look through the financial accounts and scrutinise the status of account receivables, as well as the audit process for clients with large account receivables.
Shareholders should also check the date of maturity of debts and plans for debt financing, including talks with banks about loan renewals, Mr. Gerald said. ‘Is the cash safely held in established financial institutions and properly audited? Questions may even be directed at auditors present.’
Lawyer Robson Lee from Shook Lin & Bok said that investors should also question cash balances, especially when companies are hoarding a huge amount of cash but not paying dividends.
‘Companies which had earlier announced major transactions with representations of good prospects and earnings projections should be queried on the progress, particularly if there has been no update after the first announcement,’ he said. ‘Shareholders should be concerned if there has been a prior share placement or some other fund-raising exercise for a major transaction that did not take place.’
A change of auditor is another potential red flag. Ong Pang Thye, Asia-Pacific head of accounting advisory services at KPMG, said that shareholders should look at audit reports that may highlight certain issues regarding finances.
Based on Singapore’s accounting standards, auditors would put an ‘emphasis of matter’ if an issue warrants deeper discussion but does not affect the auditors’ opinion.
Matters that affect their opinion would be highlighted by way of a qualified opinion, a disclaimer of opinion or an adverse opinion - in order of severity.
‘The situation may have changed since the date of the audit report,’ said Mr. Ong, referring to any highlighted issue.
Investors should also ask how a company plans to ‘weather the storm’ of the economic crisis and seize opportunities to sustain the business.
As for unsatisfactory responses from companies to queries by the Singapore Exchange, Mr. Ong said: ‘I’m not sure that all non-answers are red flags, but it is something that shareholders could take up and follow through.’
Shareholder Dennis Distant told BT that he understands if companies cannot share information because it is privileged or price sensitive.
But he has a strategy to get some answers, he said. ‘Ask them during makan. They are more relaxed and they’ll talk more.’
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