(English) Lesson 09: Real Life Case Studies: Investment Directly in Preference Share Issuers

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Payment is inclusive of

• What you will learn?
  • What makes up audited financial statements
  • How to detect shortcomings
• What are Financial Statements?
  • Balance Sheet
  • Income Statement
  • Cash-flow Statement
• What are Audited Financial Statements?
  • Examined by an independent auditor
  • Attest to the fairness
  • Auditor’s report
• Purpose of Audited Financial Statements?
  • Add credibility
  • Increase investors’ confidence
• What do we need to beware of?
  • Shortcomings
  • Misleading of improperly prepare
• What you will get to know about?
  • Real-life case
  • Problems in audited financial statements

What are Financial Statement Shortcomings?

• Manipulation of
  • Accounting data
  • Description
  • Disclosure
• Common Red Flags
  • Fictitious revenue and sales
  • Overstating sales
  • Understating expenses
  • Overvaluing assets
  • Understating liabilities
  • Omitting loss impairment

Terms of RPS in Company Constitution

• Subscription Price
• Dividend Rate
• Voting Rights
• Maturity Day
• Redemption
• Miscellaneous

Corporate Profile of ABC Holdings Berhad and its Group
Problem 1: Amount owing by subsidiaries

• What are the problems?
  • High amount due from subsidiaries
  • May not be able to repay
• What are the questions posed to us?

Problem 2: Investment in associated companies

• What are the questions posed to us?

Problem 3: Investment in Subsidiaries

• What are the questions posed to us?

Problem 4: Missing loan loss provision for past due trade receivables

• What are the accounting standards?
  • Allowance of doubtful debt
  • Expected Credit Loss (ECL)
  • Accountant’s judgement
• What are the questions posed to us?

Problem 5: Missing goodwill impairment

• What is goodwill?
  • Extra Value
  • Higher than market value
  • High potential
• What are the signs of high potential of making profit?
  • Good reputation
  • Solid customer base
  • New technology
• What are the problems?
  • Market value drops
  • Assessment of goodwill impairment
• What are the adverse events?
  • Declining cash flows
  • Increased competitive environment
  • Economic depression
• What is DCF?
  • Valuation method
  • Estimate present value
  • Based on expected future cash flow
• What is the Discount rate?
  • Borrowing interest rate
  • Determine the present value
  • Based on expected future cash flow

• What are the questions posed to us?

Problem 6: Understated impairment loss for inventories

• What are the questions posed to us?

Problem 7: Missing disclosure of Administrative Expenses

• What are the questions posed to us?

Problem 8: Problems with debt to equity ratio

• What is D/E ratio?
  • Ability of shareholder equity
  • Cover all outstanding debt
  • Normally not more than 50%
• What are the questions posed to us?

The Ultimate Issues

• Sign of understating loss
• Sustainability of Redeemable Preference Shares
• What are the problems?
• What are the questions posed to us?

Additional note on Year 2020

Consequences of financial statement shortcomings and the Auditor’s Liability

• Victims of the misleading audited financial statements
  • Investors
  • Banks
  • Partnerships
• Auditor’s Liability
  • Giving a clean report
  • Legal claim
  • No statutory provision to limit liabilities in Malaysia

Conclusion

• Long term success in business
  • Profitable investment
  • Pay dividends consistently to investors
  • Pay commission of agents

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Introducing Angel Liew An Qi, an R&D virtual law intern in charge of in-depth R&D research on Real Life Case Studies: Investment Directly in Preference Share Issuers (Unlisted Public Company)

We recruited her with the help of the United Kingdom & Ireland Malaysian Law Students' Union (KPUM) Beyond the Bar Programme

As a law student, she has zero knowledge on preference shares, how to read audited financial statements, how to read the corporate profiles or how to map corporate structures. We sent her for intensive 1 on 1 coaching & training with accounting interns, corporate experts & forensic auditing guru.

She put in many hours of study & hard work to learn all the new knowledge in corporate finance, accounting & auditing. In a very short deadline, she is able to grasp the essence and develop advanced webinar content on forensic auditing, investigative accounting & corporate mapping.

Once again, thanks to Angel's dedication and commitment