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SCMP Reporter

Celebrated Wall Street accounting sleuth Howard Schilit has launched his service in Asia by flagging potential problems in the books of Japanese electronics giant Sony and Singapore's Chartered Semiconductor.

The former accounting professor, who testified before the United States Congress on the Enron debacle, has built a reputation for alerting institutional investors to questionable accounting practices at listed companies.

The launch of the first Asian reports by Mr Schilit's Centre for Financial Research and Analysis (CFRA) comes as markets reel from revelations about how big name firms mislead investors on the true state of their finances.

Mr Schilit's team of 12 accountants, based in Maryland, on the US east coast, and London, will be issuing reports on two regional companies a week.

'The accounting issues we are assuming you will find in Asia are at least as bad as what you have seen in America,' he said.

'Enron is a great example of what could happen when the outside gatekeepers, the outside directors, aren't doing their jobs properly. So imagine what can go on if you don't have those gatekeepers at all.

'There could be a number of Enron stories we could stumble across with Asian companies.'

In a comprehensive look at Sony's books, CFRA pointed out that sales to affiliated companies had jumped 133 per cent to 72.8 billion yen (about HK$4.85 billion) during the financial year to March 31. Sales to affiliates do not bring in cash to a business group.

Sony might be boosting its profits by drawing down on reserves established in previous years, CFRA said.

One worrying sign was a more rapid rise of assets than revenues.

'CFRA raises concern that [the] company may be capitalising costs, on its balance sheet, that it would previously have expensed on its income statement,' Mr Schilit's firm said.

For Chartered Semiconductor, CFRA said that the made-to-order chip foundry had suffered from negative free cash flow in seven of the past eight quarters 'including periods of significant net income'.

The company's debts rose 45 per cent to US$1.5 billion in the year to March 31 partly because operations were burning cash, CFRA said.

The accountants also cautioned investors about the US$444 million debts of 49 per cent-held affiliate Silicon Manufacturing Partners which Chartered kept off its books.

Meanwhile, the treatment of 75 million employee stock options on Chartered's books meant the company was able to report a loss for the year to December 31 which was 20 per cent less than it might have been.

'Although [Chartered's] treatment of these options is acceptable under generally accepted accounting principles, it does not reflect the true cost of granting the options,' the CFRA report said.

Bookworm - Business 2, Page 1



Accounting sleuth launches service in Asia to diagnose, treat Enronitis