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Technology Stocks : PCW - Pacific Century CyberWorks Limited -- Ignore unavailable to you. Want to Upgrade?

To: ms.smartest.person who wrote (1581)	7/10/2001 11:02:38 AM
From: ms.smartest.person	Read Replies (1) \| Respond to of 2248

Differing Accounting Standards Can Trip Even Savvy Investors By Phillip Day Staff Reporter of The Wall Street Journal SINGAPORE -- Get yourself a cup of coffee before you read this. The topic is accounting, but if you want to be a successful investor in Asia, you need to stay awake. With the world-wide bull market in equities at an end, investors in Asia and around the world have been forced to take up a "value" strategy, picking securities based on the fundamental health and potential of the issuing companies. That is a big change from the days when the bulls ruled most Asian markets, and investors could be confident that their investments would ride the rising tide of whichever market was soaring that year. Now the tide is out and canny Asian investors have become careful students of corporate results. Investors are also wisely spreading their risks by balancing portfolios between bonds, stocks and other instruments, and making sure their investments aren't concentrated in one country. But even careful value investing has its pitfalls, especially when comparing companies in different countries. Comparing companies from different jurisdictions is like comparing apples and oranges because of the accounting rules that govern the way they report their activities. Investors can't simply make head-to-head comparisons of such things as the profit and loss of companies in different countries, even if those companies closely abide by local rules. One example is Hong Kong's Pacific Century CyberWorks . The company reported a loss of 6.9 billion Hong Kong dollars (US$884.6 million) for last year under Hong Kong accounting rules. But last week, PCCW reported that under U.S. accounting rules that loss was actually HK$14.57 billion for the same period. It had to report its results under U.S. standards as well because Cable & Wireless HKT, the company it took over last year, lists American depositary receipts on the New York Stock Exchange. It is worth remembering that such a huge difference arose even though Hong Kong is generally considered to have some of the best accounting standards in Asia. The world's biggest accountancy firms looked at the differing accounting standards in 53 countries as of the end of last year. Their study, released through the International Forum on Accountancy Development, found "there is still considerable work to be done before company financial results can be directly compared between one country and another." Investors should be aware that those differences aren't just between countries in Asia. The U.S., the United Kingdom and other European countries also operate under different accounting rules, making comparisons between companies in those jurisdictions problematic as well. Efforts are under way to bring accounting practices in line around the world, but it will be at least five years before harmonization starts to become a reality. Make no mistake, accounting standards in Asia are better than they were before the financial crisis and are getting better all the time. But if investors plan to spread their stock purchases over a number of countries (and that is always a good idea), they should know how companies can use local accounting rules to portray their results in the best possible light. For example, many companies across Asia overspent during the boom years, expanding in ways that often seemed to make little sense. Some of those big spenders have been able to use local accounting rules to minimize the effects on their bottom line. In Malaysia, Thailand, Indonesia and the Philippines (and until recently in Singapore), for example, the costs of starting up a new business can be capitalized as an intangible asset. That means any money spent on starting up a new business can be recorded on the balance sheet as an asset that will bring in money, instead of as an expense on the income statement. The company may still record an expense, but only a small portion every year over what can be a long period of time -- a process known as amortization. Another area to watch is the way that companies treat goodwill, the difference between the net asset value of an acquisition and the higher price a company pays for it. Some countries allow companies to write off goodwill immediately while others, such as Hong Kong, now demand that goodwill is written off over a period of up to 20 years, which provides a better assessment of whether the company's long-term earnings justify the purchase price. "For any specific set of statements, you need to look at what these [accounting] policies are," says Maria Lee, a partner at accounting firm KPMG in Singapore. Investors don't need to be accountants to make money, but a basic understanding of the rules in the countries where they invest should be a part of everyone's repertoire. Write to Phillip Day at phil.day@awsj.com