08-08-2013, 04:17 PM
(This post was last modified: 08-08-2013, 04:19 PM by Temperament.)
Extract: BT.
"SINGAPORE - What if someone told you that the financial statements of a company that you depend on to make your decisions - as an investor, creditor, potential acquirer or some other stakeholder - were almost totally the result of human judgment rather than hard fact?
It would seem an unbelievable scenario to many. But the fact is, it is now very much the reality here.
In the first such study of its kind, KPMG has analysed 200 Singapore-listed companies - ranging from small caps to large caps, and including the likes of SingTel and SMRT - and found that 82 per cent of the asset values represented on their balance sheets are based on estimates and must be re-estimated when their balances are carried forward into the next financial year.
What this means is, a huge proportion of total asset values reflected in existing financial statements are at risk of being subjected to some form of human bias, error or mis-statement in their derivation.
That's not all. KPMG's report found that as little as a one per cent fluctuation in the total asset value can result in as much as a 38 per cent change in net profit - and up to a 50 per cent change in comprehensive income. The impact of inaccurate estimates of asset values is, therefore, significant.
These are assets that have to either be carried at fair value or are subject to impairment charges; common examples are intangible assets such as goodwill, and tangible assets such as investment property.
"Estimates are, by their very nature, subjective. They are underpinned by the nature and reliability of the information used to form these accounting estimates - which can vary widely," said Ong Pang Thye, head of audit at KPMG in Singapore, yesterday.
"Management bias can be a major problem in determining accounting estimates. It can be both unintentional (for example, human error) or intentional (for example, motivation to achieve a desired result). The susceptibility of an accounting estimate to management bias increases with the subjectivity involved in making it," Mr Ong added.----------"
IMO.
i always feel we are all at the mercy of the accuracy of ARs from anywhere in the world. Not necessary Singapore.
Amen.
"SINGAPORE - What if someone told you that the financial statements of a company that you depend on to make your decisions - as an investor, creditor, potential acquirer or some other stakeholder - were almost totally the result of human judgment rather than hard fact?
It would seem an unbelievable scenario to many. But the fact is, it is now very much the reality here.
In the first such study of its kind, KPMG has analysed 200 Singapore-listed companies - ranging from small caps to large caps, and including the likes of SingTel and SMRT - and found that 82 per cent of the asset values represented on their balance sheets are based on estimates and must be re-estimated when their balances are carried forward into the next financial year.
What this means is, a huge proportion of total asset values reflected in existing financial statements are at risk of being subjected to some form of human bias, error or mis-statement in their derivation.
That's not all. KPMG's report found that as little as a one per cent fluctuation in the total asset value can result in as much as a 38 per cent change in net profit - and up to a 50 per cent change in comprehensive income. The impact of inaccurate estimates of asset values is, therefore, significant.
These are assets that have to either be carried at fair value or are subject to impairment charges; common examples are intangible assets such as goodwill, and tangible assets such as investment property.
"Estimates are, by their very nature, subjective. They are underpinned by the nature and reliability of the information used to form these accounting estimates - which can vary widely," said Ong Pang Thye, head of audit at KPMG in Singapore, yesterday.
"Management bias can be a major problem in determining accounting estimates. It can be both unintentional (for example, human error) or intentional (for example, motivation to achieve a desired result). The susceptibility of an accounting estimate to management bias increases with the subjectivity involved in making it," Mr Ong added.----------"
IMO.
i always feel we are all at the mercy of the accuracy of ARs from anywhere in the world. Not necessary Singapore.
Amen.
WB:-
1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.
Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.
NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.
Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.
NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.