derek abdinor

While insider trading and short-selling are largely strictly regulated and, on the face of it, discouraged, in most markets, there is an academic argument in favour of the two practices.

From The Telegraph:

At first blush the argument in favour of insider dealing was seductive. An insider who bought or sold shares had intimate knowledge of the company’s financial performance. Armed with this knowledge, he was best placed to assess the true value of the share, so where the share was undervalued or overvalued an insider’s intervention ensured a correction occurred…

… As with insider dealing, the arguments in favour of short selling are impeccably logical. Economic theory suggests that short selling contributes to accurate share valuation since it enables share value to reflect the negative perception of company performance that market participants have formed. In this way short selling promotes an orderly adjustment of the stock price.

The topic revolves around information, and the communication thereof. Insider traders enjoy privileged information, which is bound to come from intimate knowledge of management personnel, strategy, operations and risk positioning.

In that case, sell-side research, already hamstrung, is not going to be worth a tranche.

Via Twitter. Link to full article

Essentially, IRIS did a survey on the financials of 1500 Indian public companies. Discrepancies appeared in over 200 of them; figure differences as opposed to accounting interpretations.

One of the outcomes of the survey was to highlight the effect that XBRL will have in bringing such problems to light, and ultimately, to bring them in line.

In more XBRL-as-Superman news,  UBMatrix has a paper on how XBRL will help track TARP spending.

A bill of rights for more transparency and governance has been presented to the US Senate. With many echoes of the South African King Code on Corporate Governance it attempts to formalise risk, proxy and remuneration issues.

From Compliance Week:

May 19, 2009

Shareholder Bill of Rights Act Introduced

The highly anticipated Shareholder Bill of Rights Act of 2009 has reportedly been introduced in the Senate today and press releases opposing and supporting the legislation are already flying.

As Compliance Week has reported, the bill, sponsored by New York Democrat Charles Schumer, would, if passed, require companies to:

• Provide an annual non-binding shareholder vote on executive compensation;
• Provide shareholders a vote to approve golden parachutes;
• Give shareholder access to the proxy for board nominations;
• Split the chairman and chief executive roles;
• Hold annual director elections;
• Implement majority voting for directors and
• Establish risk committees comprised of independent directors

The Council of Institutional Investors issued a statement applauding the Act, which it says would “go a long way toward making boards of directors and managers of public companies more accountable to shareowners.”

Meanwhile, the Business Roundtable issued its own statement, in which its President, John Castellani, calls the bill “an unnecessary intrusion” into matters governed by state corporation law and matters currently being addressed by the Securities and Exchange Commission, stock exchanges, and public company boards.

The text of the bill is available here, courtesy of Davis Wright Tremaine’s Corporate Finance Law Blog.

Posted by: maguilar (Melissa Klein Aguilar)  @ 4:03 pm 

A few minutes ago the announcement was made that Pravin Gordhan, current Commissioner for SARS, has been handed the position of Finance Minister. Current minister, Trevor Manuel, moves on to run a new economic planning commission.

Pravin Gordhan

Gordhan has spoken at XBRL events in South Africa, and believes the standard will be an accepted mode of business reporting. He has approved XBRL activity at SARS, and may lead with accepting corporate tax returns.

Extensible Business Reporting has undoubtably got the kinetic energy to become a political football. XBRL seems to have been nurtured by outgoing US SEC chairman Cox, but owing to the fiascos that happened on his watch, it made sense that new chairman Shapiro would distance herself from it, saying it was not a priority.

What this will mean for XBRL adoption in South Africa is going to be a  question as big in these parts as the endless waiting for last year’s SEC mandate.

Two codes of corporate governance have ruled informed public companies in the last 15 years in South Africa – the King codes.

The third code was launched in Johannesburg last week for public review – you can view it here.

Some interesting points:

• shareholders ought to approve remuneration, and an annual remuneration report needs to be published
• the audit committee to be appointed by shareholders
• a Chief Risk Officer to be mooted
• Sustainability reporting should be an ongoing process
• the majority of the board should be non-executive; the majority of that being independent.

I must observe with unjaundiced eye that South African companies, notably the blue-chips, do adhere to the King recommendations. As it is a widely used benchmark, it is expected to come across in the company’s annual report. No self-respecting company secretary could pretend not to know about King and the recommendations.

It seems some of the proposals in the draft review are to be found between what is happening in the developed world and the new South African Companies Act, also fermenting in legal and regulatory circles.

We are all analysts. We have all the information at our disposal and we will marry that to our experiences and opinions. We don’t have faith in the established financial, political, consumer and even sporting analys systems because they’ve proven fallible. Which is ok, but not when you’re taking a fee.

We’re in a world where:

1. There is general public mistrust of Big Bailed Business – in a world where information is a click away, citizens can see how companies are faring and paying themselves
2. Social media is a broadly accepted media channel. Pastor bloggers, mommy networks, Republican tweeters have skyrocketed in growth, and online has become flooded with “Hire me! I’m a social media and SEO Expert!”.
3. We have a stake in the tools that we use. Open Source software allows for tinkering, adapting and contribution. Users feel they can make their own software better, and therefore they can pass criticism on it.
4. Political analysis is quite detailed, but, like sports analysis, if you slap a 24-7 news channel on anything you can change your tune under the glare of the klieg lamps. Spotlights create more 360 degrees of shadow.

XBRLSpy: XBRL: An attempt to empower amateur analysts?
Dianne takes the view that the XBRL ruling in the US may mean many things, but it was not created to empower amateur analysts. That may be a by-product, but the millions of dollars pumped into XBRL had more upstream application.

Monkchips: Software ecosystems and convergence
James is an industry analyst for IT issues and Environmental issues – therefore you get a multisided take on both. Redmonk use the web natively, and are therefore specialists across a broad spectrum (no sic).

IR Web Report: Time to open up your earnings calls to bloggers
Dominic points out that Barack Obama called on a blogger for questions in his briefing. Research has also shown that blogs have become influential, and in many case, are as good a source for stock picking as the traditional sources. Companies should open up their calls to influential bloggers.

Re:The Auditors: Who Guards the Guardians?
Francine covers the big four accounting firms, and doesn’t let them get away with anything. Extremely influential. 

Alacra: A list of analysts
This list is of analysts in many sectors – some are formal analysts from firms (Gartner, Forrester, Redmonk) and others more informal.  

Remember desktop publishing? We don’t call ourselves Publishers. 

Blogging? Some call themselves Bloggers, but it implies “thinker and commentator” rather than a person who simply posts. Very like a poet.

This meme came about a week after finding some serendipitous links, usually via Twitter. I’m calling it to become big – especially as it is foreseen that people are going to get very pissed off this year.

Ok, the heading is misleading and would constitute baiting if I cared enough.

Found via Dianne Mueller and sure to become an internet meme. Explaining an accounting process need not be dry when you see these cartoons (click on the image). Sure to give the Plain English versions a run for their money.

From JICPA, the Japanese Institute of Certified Public Accountants.

On a related topic, the discussion is around Twitter replacing RSS as a news feed of choice for online media types. I dramatically cut my RSS reading time and use Twitter because the idea is germinated on Twitter before it becomes a post – So Dianne tweeted about this, and then did her post.

Apart from the fact that ou can pull RSS into Twitter,  expecting users to congregate around a news reader to passively consume media is actually, despite RSS and other add-ons, a very Web 1.0 concept. We ought to know better.

The King II Code of Corporate Governance, which  recommends good practices for listed entities in South Africa, has always been in favour of companies having non-executive representation on the boards as well as the committees of listed companies. The reasoning behind these recommendation went as follows:

• non-executives are relatively impartial
• they bring different expertise and strategic input, being seperate from the operational running of the company
• they should be in the majority on the remuneration and audit committees in order to represent shareholder interests 

PWC brought out the Non-Executive Directors Best Practices and Fees Report which was of far more pertinence in 2009 than in any other time.  Amid bailouts in developed countries and exorbitant remuneration, non-executives are either being looked to highlight problems or to shape up their own accountability.  That aside, in this country a professional non-executive director is a full-time career.

As an afterthought, why do boards get ‘remunerated’ and ‘compensated’ for their time, whilst workers get ‘wages’ or a ’salary’?

Last week the SEC formally published the XBRL mandate. While they released it in mid-December 2008, this was total ratification. Sound weird? Think of it just as  Barack Obama re-taking the oath of office after some minor fluffs

Of more interest to me is the ruling for non-US companies listed on the US markets. They file to the SEC in US GAAP, although many of them undoubtably are reporting in their countries in IFRS. The US will have to start reporting in IFRS in a few years, and therefore are open to foreing filers filing in IFRS XBRL down the line.

There seems to be confusion around this matter, so to highlight selected parts of the formal rule:
 

1. we believe that the updated IFRS list of tags will be sufficiently advanced to require that foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB provide their financial statements in interactive data format under the phase-in schedule we are adopting 
2. We also encourage foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB to provide financial information in interactive data format once EDGAR will accept such filings. (the footnote [94] to that says: Pursuant to the EDGAR Filer Manual, we will notify filers of the ability to file in IFRS on our Web site.)
3. Foreign Private Issuers with Financial Statements Prepared in Accordance with IFRS as Issued By the IASB will have to submit reports on Form 20-F or Form 40-F for fiscal periods ending on or after June 15, 2011

To summarise, from conversations with the SEC, they’re looking at possibly accepting IFRS (the official IASB version) in the third year (2011). Filing in IFRS to EDGAR is likely to happen before that, but as we know, EDGAR will probably not last long after June 2012.