Personal gains drive profit mismatch

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Auditors find listed firms in Vietnam overstating or underplaying profits to serve different agendas

Investors check stock prices at Orient Securities Corporation in Ho Chi Minh City. Experts said investors need to read financial reports of listed companies carefully before making a decision.

Inflated and deflated profit figures do not hold huge major surprises for auditors, but the extent of discrepancy discovered recently with several listed companies has raised doubts over the transparency and accuracy of financial reports in Vietnam.

Investors and economists said the gaps were not likely to be oversights, but deliberate actions with an agenda.

Sacombank's net profit in the first six months was revised down 35.5 percent by auditors, from VND1.17 trillion (US$60 million) to VND755 billion ($38.7 million).

Profits reported by Vietinbank were also adjusted significantly to VND1.65 trillion ($84.6 million) from VND2.37 trillion ($121.6 million) after audit. The bank said it had not included salary payments and certain losses in its report, hence the gap.

Meanwhile, property developer Quoc Cuong Gia Lai was found to report less profits than it should have. The company posted a half-year profit of VND9.7 billion while the audited figure was VND86.2 billion.

While the company explained that it decided to leave more than VND76.5 billion earned by selling a project for the upcoming third quarter report, many investors were skeptical. Listed companies are required to report all information that can affect share prices.

Economist Le Dat Chi of the Ho Chi Minh City Economics University said discrepancies between audits and financial reports of companies could not be taken lightly as something "accidental".

It's unacceptable that a head accountant at a bank or a large company fails to complete a financial report properly, he said.

If there are discrepancies in the figures, it means businesses have their own agenda, Chi said. Some companies may want to "save" parts of their profits for a later announcement to attract investors while others do so for some insider trading scheme. Delaying the announcement can give managers and board members some time to purchase more shares before they rise.

"In a market that lacks transparency, it's definitely possible to hide profits for personal interest," he said.

Experts said while some insiders may benefit from financial disclosures, a number of shareholders can be negatively affected if they, for instance, decided to sell shares without knowing that the company had actually earned higher profits.

Vietnam began to require public companies to disclose their half-yearly financial reports this year.

These reports, however, are not treated like the annual reports. Auditors only use it to caution businesses about what does not seem right so that due corrections can be made by the end of the year.

Economist Nguyen Van Thuan, head of the financial and banking department at the HCMC Open University, said half-year financial reports follow less stringent procedures than year-end reports, making it easy for companies to hide part of their profits and losses.

However, if the hidden parts are too large, it means the company is not being honest with its shareholders, and this can affect its reputation, Thuan said.

He said while waiting for the authorities to tighten control over financial reports, investors should "protect themselves" by checking the reporting carefully and comparing recent and past figures. A sudden rise or fall must be justified properly, he said.

Investors can also avoid risks by "staying away from shares of companies that engage in inaccurate reporting or try to delay publicizing their reports," he said.

Economist Nguyen Thi Loan of HCMC Banking University agreed that investors need to equip themselves with skills to read and understand financial reports and audit reports.

It's also necessary to check the credibility of the auditing firms chosen by businesses, Loan said.

Financial reports provide information based on which investment decisions are made and thus their accuracy is really important. If businesses, for any purposes, try to either exaggerate or understate their profits, the State Securities Commission must take punitive measures, she added.

Nguyen Doan Hung, vice chairman of the State Securities Commission, said the commission would continue to oversee the disclosure of information on the stock market to protect investors.

Violators will be fined in order to maintain investor confidence and keep their interest, Hung said at a recent conference.

Chi believed the authorities should be stricter with dishonest companies.

"If businesses are allowed to report however they like with whatever discrepancy, even the righteous ones will report wrongly for their own benefits," Chi said. "This is really dangerous for a young stock market like Vietnam."

With September coming to an end, local businesses will soon announce their financial reports for the third quarter.

As the stock market is still sluggish, some listed companies will want to sharpen up their reports in order to drive their shares up, Chi said.

Investors should be cautious with these quarterly reports as they will not be audited, he warned.

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