This is also the time when the stock market is very active.

Naturally, the companies’ performance will greatly affect their stock prices.

Thus, the market persuades many companies to resort to creative accounting or, to put it more bluntly, cooking the books.

A typical financial report shows the company’s revenues, costs, profits, assets, investments, etc. in the latest quarter.

But in Vietnam, quite a few financial reports are prepared just for the tax man’s consumption and to please stockholders.

It is not too difficult to be creative with the figures since sometimes working out short-term losses or gains is quite a technical issue.

Only the company bosses and some major shareholders know the truth; a majority of the shareholders have no chance to verify the figures.

A common practice is for a big company to set up a subsidiary and have it listed.

When it’s that time of year to cook the books, the subsidiary proudly claims all the profits while the parent company accepts the burden of the costs.

Investors who are tricked by the rosy figures rush to buy the subsidiary’s stocks, sending its price rocketing up.

The parent then secretly uses part of the huge profits from trading in the subsidiary’s stock to cover the costs.

Besides, subsidiaries of a group can sell products to one another. Eventually the whole group reports good-looking figures.

Another big source of profits is additional issues of stocks.

Many companies make fresh issues when the market goes up just for the wind-fall amounts they bring in without any plans to use the money raised.

But with the equity diluted in this manner, earnings per share go down sharply.

Part of these monies are used to pay dividends - in other words, the stockholders’ own money is used to pay them dividends, a bit like a snake eating its own tail, and does not actually reflect the company’s performance.

Some companies’ Q3 financial reports show that a major part of the profits came from trading in their stock, with their main business earning almost nothing. Such short-term profits should be worrying.

Accounting transparency and disclosure of information are rules every listed company must follow.

However, it’s not an exaggeration to say playing by these rules is still unusual in our country.

As a result, the unbelievably “good-looking” reports are actually making things ugly. The issue of protecting small investors’ interest has been virtually ignored.

In countries with advanced financial markets, a business found to have concealed information could be fined heavily or even face criminal action.

In Vietnam, however, one can now only hope that regulations will improve and ensure protection for stock market investors.

Companies found violating regulations pay a fine of a few dozens of millions of dong.

It is unfair and absurd that those who do wrong and are fined make a fortune while those who play by the rules don’t.

How long will this ridiculous situation last?

Source: ThanhnienNews.