June. 2010

                                                           http://www.china-investigation.com

Panama Regional Meeting of CII was held from May 21 to May 23, 2010, and the host was Brett Mikkelson of BM Investigation, Inc.

The photography works My Flight, taken by Mr. Hai Yang, President of Steele, won the winning prize and was published at website of the 70th International Photographic Salon of Japan 2010.

 To maintain the stability and strengthen equities regulatory of insurance companies and protect the legal rights of investors and the insureds, China Insurance Regulatory Commission announced Measures for the Administration of Equities in Insurance Companies, which will came into force on June 10, 2010.

The Tort Law of the People’s Republic of China will be implemented in July 2010. Network infringement is one of the emphases the law put on. The law regulated network users and providers who make use of network to infringe other people’s civil rights shall undertake tort liability. If network users who carry out tortious acts through network, the infringed owns the right to inform network providers to adopt necessary measures like deletion, shield, link disconnection, etc. The network providers who are informed but do not take action will undertake joint liability with network users. And the network service providers who are aware of network users infringing upon other people’s civil right through their network and fail to do necessary measures will also undertake joint liability with network users.

Risk Management in Financial Due Diligence

Due diligence on finance needs to pay attention to the three aspects: enterprise cash flow, articulation among data as well as fraudulent practices in management and financial data forgery.

1. Cash Flow
Enterprise’s total cash flow is a fatal aspect in the entire financial due diligence, the significant indicator of enterprise’s financial status and performance, and also the important basis in judging enterprise’s value.

The “cash flow statement” compiled based on cash is a helpful supplementary to balance statement and income statement, both of which are compiled based on accrual basis principle. During items processing, an enterprise’s cash flow capability can often be judged from the following four aspects: net cash flow produced during operating activities, cash content from net profit, cash content from main operations, cash flow per share. We can say that cash flow is the quality index of enterprise’s profitability.

2. Articulation
From the angle of financial due diligence, articulation among data can be divided into three layers. The first one is the relation among the three statements and relation among items. The data in financial statements can reflect an enterprise’s financial quality and corresponding risk field, especially associate party and trade. You need to learn the commercial story and logic behind the data. Generally the following inspections should be involved in financial due diligence: risk inspection in accounting subject from the view point of business risk, understanding of enterprise’s growth stage, understanding of commercial essential in accounting. The second layer lies in the relation between current financial data and previous ones. The last layer is financial data comparison among enterprises in the same industry.

3. Data forgery
Fraudulent practice can be widely defined by laws. What financial due diligence cares particularly are the behaviors that can result in significant misrepresentation in financial statements.

Fraudulent practice is also a risk that challenges moral. Perfect equity and managerial structure plays the important role in preventing fraud and financial data forgery. Take a certain project for example: there was a private enterprise selling sewage disposal equipments and controlled by several natural persons. During the process of financial due diligence on the enterprise, the real inventory of the equipments was found not in accordance with the paper inventory in the financial statements and the enterprise’s employee at financial department could not explain the reason. As the most important assets for the enterprise, why was it not in accordance with the account? There must be a deeper reason behind it. After the further investigation, it was found many products had already been sold and the money obtained was embezzled by the shareholders, on the other hand, the financial account didn’t record the products had been sold, which resulted in the unconformity. Furtherer investigation showed this enterprise did not have the check and balance system in its director board and management at all and the boss had the final say. The financial department and internal audit also acted according to the boss’s wishes, losing their role to supervise internally and be independent. The final goal of financial due diligence is to explore enterprise’s long-term value. More and more Chinese enterprises will seek the intervention and instruction of private equity fund prior to be listed. Only discovering enterprises’ value on the basis of understanding and helping them avoid risks during going public and realize long-term appreciation can create value for them.

Source: http://www.scharvestcap.com/English/NewsView.asp?ID=97&SortID=26
　

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