Economics – Apichet Blog

Thai Customs Business Conference 7 July 2016

On Thursday 7 July 2016 I had the privilege of attending the first ever Thai Customs – Business Conference, which was held at the S31 Sukhumvit Hotel in Bangkok.

This conference, which was attended by around 100 conference participants from a broad range of interested stakeholders including many Chambers of Commerce, represented a refreshing outreach by the Thai Customs Department to the Thailand business community.

The recently appointed Director General of Thai Customs, K. Kulit Sumbatsiri, stated very clearly and concisely that Thai Customs needs to adjust and change from being a Tax Collector to become a Trade Facilitator, and no longer be an obstacle to trade and investment.

He also indicated in his opening remarks that Thailand can no longer count on customs tax collection as a significant source of revenue, because tariffs are being restructured to increase Thai trade competitiveness.

The Thai Customs Department is currently executing its new five year plan, titled “Future Customs 2020.” This plan will see the transformation of the Thai Customs Department to become a trade facilitator for Thailand business activities.

New initiatives that the Thai Customs Department is diligently pursuing include:

National Single Window: This has been discussed for more than ten years, but is now being diligently pursued. The National Single Window will effectively create a “One Stop Shop” for importers, where the Customs Department will be electronically linked to 36 related government agencies in a database, to allow importers to pursue import licenses from relevant agencies such as the Agricultural Department, Ministry of Industry, and even the Ministry of Public Health. The goal is to facilitate prompt and convenient import license approvals. A pilot program involving the five most frequently imported goods will soon be launched.

Pre-Arrival System: This is a system to expedite customs arrival formalities. Manifests from air and ocean shipments will be transmitted to Thai Customs six hours in advance of arrival. Thai Customs will analyze the manifests during a 4 hour period prior to shipment arrival, and pre-approve shipments for the Green Line or Red Line channels. The Pre-Arrival Process of Suvarnabhumi Airport is being used as a model. The goal is to expand this system to other airports and seaports based on the success of the Suvarnabhumi model.

Authorized Economic Operator Program (AEO): The AEO program is a successor to the previous 1999 Gold Card Scheme and the 2009 Licensed Customs Broker program. AEO was launched in 2013 upon the cancellation of the Licensed Custom Broker program. Today Thailand has 297 AEO Operators, including 147 Customs Brokers and 150 Importers / Exporters.

The advantages of AEO include exemption from physical examination except for related laws otherwise stated or in the case of suspicions. Also, AEO members will receive priority for conducting physical examinations when they are required.

Thailand is in the process of negotiating reciprocal “Mutual Recognition Arrangements (MRA)” with Hong Kong, Singapore, Malaysia, and S. Korea. Hong Kong and Thailand have already executed an MRA agreement, and a pilot operation will begin later this year.

Advanced Tariff Ruling (ATR): This is a service for importers to seek an advance ruling on tariff classification of goods prior to import into Thailand, upon a written request. This will provide certainty with regard to the correct tariff classification for imported goods. An ATR ruling is effective for two years from the date of the ruling, and will be issued within 60 official working days after application.

Digital Customs and Customs Mobile Application: The Thai Customs Department is working on a mobile application that will greatly facilitate the importation and customs clearance process.

During the conference, the Thai Customs Department officials also provided an update on recent and pending revisions to Thai Customs Laws, some of which are nearly 100 years old. Most noteworthy are incremental changes to the Rewards and Bribes laws, which will limit the size of rewards paid to Customs officials.

I very much appreciated the information and vision that was shared by the Thai Customs Department. I am cautiously optimistic that the Thai Customs Department can effectively transform itself into a modern, professional, world-class trade facilitator.

Frank T.

The New Case for Gold: James Rickards 2016

“The New Case for Gold” by James Rickards, was just published in April 2016 and is a Wall Street Journal Business Best Seller.

James Rickards is one of today’s thought leaders on Global Currencies and the Global Financial System, and he is a strong advocate for a return to the Gold Standard. “The New Case for Gold” builds on foundation established by Rickards previous books “Currency Wars” (published 2011, see my blog post dated March 2015) and “The Death of Money” (published 2014, see my blog post dated June 2016).

Rickards has done a masterful job of packing a great deal of historical and technical information into a relatively short book of only 192 pages. Rickards writing is clear, concise, well researched, and well reasoned. He makes a very strong case for returning to a Gold Standard, which has been the prevailing global currency standard for most of the past 5,000 years.

“The New Case for Gold” debunks many commonly held misconceptions about Gold, especially why Gold is no longer suitable for use as a Global Currency. One of the most common criticisms of gold is that “there’s not enough gold”. Rickards explains that what this really means is that there isn’t enough gold at its current valuation. Rickards analyses the valuation of Gold based on several potential valuation scenarios, and theorizes a current valuation, consistent with historical models, of $10,000 per ounce. This valuation model gives strong insight into how badly debased the US dollar has become since it became a fiat currency.

Much of the current monetary economic theory is based on the work of John Maynard Keynes. Central bankers have been using and abusing Keynes’ economic theories for decades. However, Rickards notes that “Keynes was an advocate for gold early in his career, an astute adviser on gold in mid-career, and an advocate for gold again late in his career.” Rickards notes the famous Keynes quote “In truth, the gold standard is already a barbarous relic” which many observers use as evidence against a return to the Gold Standard. However, Rickards explains that Keynes was not advocating against Gold backed currencies, but rather complaining about the “Gold Exchange Standard” that was in place between 1922 and 1939. The Gold Exchange Standard was notoriously flawed and Rickards agrees that “it should have been abandoned long before it died with the outbreak of the Second World War.”

Some of the most tantalizing sections of “The New Case for Gold” involve Rickards research into current gold reserves held by various nations, and the ongoing stealth purchase of gold by China and Russia. Today there are approximately 35,000 tons of gold owned by central banks, finance ministries, and sovereign wealth funds. Rickards observes that “China, like Russia, is acquiring gold so that it will have a comparable ratio to the United States and Europe. The gold-to-GDP ratio will be critical when the monetary system collapses because it will form the basis for any monetary reset and the new ‘rules of the game.'”

Rickards also explains that China is buying gold to hedge its position in US Treasuries. If Inflation gets out of control and China doesn’t have its portfolio of US Treasuries hedged, “China will be left in the dust.” However, if China can reach its target of eight thousand tons of gold, China will have its US Treasuries holdings adequately hedged.

Rickards advocates for prudent investors to hold 10% of their portfolio in physical gold, and gives prudent justification for his recommendations. He discusses best practices for acquiring and holding gold, and also discusses serious pitfalls especially concerning various forms of “paper gold.”

I enthusiastically recommend “The New Case for Gold” to anyone keenly interested in the Global Financial System, is skeptical about the safety and security of Fiat Currencies, or has an interest in prudently diversified investments.

Frank T.

Currency Wars: James Rickards 2011

Back in March 2015 I posted a review of James Rickards’ book “The Death of Money”, which was published in 2014. In that book, Rickards presented a fascinating and frightening review of the current Global Financial System and outlined the inherent dangers of Fiat Currencies.

Recently I have started following James Rickards on Twitter, and have therefore been inspired to read more of his published works. I have just finished reading both “Currency Wars” which Rickards published in 2011, and “The New Case for Gold” which was just published in April 2016. I will post my review of “The New Case for Gold” in the coming days.

James Rickards has degrees in both Law and International Economics, and has more than 35 years of experience on Wall Street. He was the General Council for the infamous hedge fund Long-Term Capital Management (LTCM) and had a front row seat to witness the collapse and bailout of LTCM. He was the principal negotiator for LTCM with the Federal Reserve Bank of New York.

In “Currency Wars” Rickards does an excellent job of presenting the history of gold backed currencies, fiat currencies, and the objective historical evidence for the safety and stability of prudently managed gold backed currencies. He provides a very solid historical perspective to understand and interpret the relative advantages and disadvantages of gold backed and fiat currencies, and relates this historical evidence to current day events.

Rickards explains that “Currency wars have been fought before – twice in the twentieth century alone – and they always end badly.” He also states that “by engaging in quantitative easing, the Fed has effectively declared currency war on the world.”

In a particularly enlightening, sobering, and frightening section of the book, Rickards introduces and explains Behavioral Economics and Complexity Theory. He defines a complex system as a system that includes “spontaneous organization, unpredictability, the need for exponentially greater energy inputs and the potential for catastrophic collapse.” He describes a Swiss watch as being complicated, having many gears, springs, jewels, stems, and casings, but a Swiss watch is not Complex. As a comparison, he describes human consciousness, which is an emergent property that arises out of a complex combination of organic elements.

Central Bankers and economists have not yet embraced Complexity Theory, and instead continue to rely on equilibrium models, confident in their ability to calculate and manage predictable outcomes. However, since markets are not merely complicated, but are truly complex, they are fully capable of, and have frequently demonstrated, spontaneous organization and unpredictability, and periodically end in catastrophic collapse.

Rickards explains that one solution to dealing with a complex system is to make the system smaller, known as “descaling”. Ski patrols use dynamite to cause small avalanches, to descale or simplify the masses of snow accumulated on unstable slopes. He observes that our Central Banks have allowed our financial system and the “too big to fail” banks to grow much larger and more concentrated than immediately prior to the 2007 market collapse. He states that “the financial ski patrol of central bankers is shoveling more snow on to the mountain.”

Rickards discusses the future and potential solutions to our currently unstable global financial system in his final chapter “Endgame – Paper, Gold or Chaos?” He strongly supports and defends a return to the Gold Standard, noting that it “offers the best chance of stability but commands so little academic respect as to be a nonstarter in current debates. This leaves chaos as a strong possibility.” He strongly advocates to “break up big banks and limit their activities to deposit taking, consumer and commercial loans, trade finance, payments, letters of credit and a few other useful services.” He proposes banning derivatives except for standardized exchange-traded futures with daily margin and well-capitalized clearinghouses. He observes that “Derivatives do not spread risk; they multiply it and concentrate it in a few too-big-to-fail hands. Derivatives do not serve customers; they serve banks and dealiers through high fees and poorly understood terms.”

“Currency Wars” is a fascinating book. I highly recommend it to anyone seeking a better understanding of our Global Financial System.

Frank T.

DigiMarketing: Wertime and Fenwick 2008

I have again visited my dusty bookshelf to review an outstanding book on Digital Marketing: “DigiMarketing – The Essential Guide to New Media & Digital Marketing” by Kent Wertime and Ian Fenwick.

In the interest of full disclosure, I studied under Dr. Ian Fenwick at the Sasin Graduate Institute, and remain to this day a big fan of Professor Ian. He is a gifted teacher, researcher, and public speaker.

Digital Marketing is a fast moving field and industry. The rate of change and pace of innovation continues to be phenomenal. I therefore found it quite interesting to review this “ancient” eight year old book. My goals were to refresh my knowledge on digital marketing, and also to gauge the changes that have occurred during the past 1-1/2 lustrum (yes, I’m a Rooster Cogburn fan).

Wertime and Fenwick pack a lot of information and wisdom into 392 pages. They organized their book into three sections: “New Media and Marketing in the 21st Century”, “Digital Channels”, and “A DigiMarketing Planning Framework”.

The Internet is a truly global phenomenon, and the core principles of Digital Marketing therefore enjoy a global relevance. One of the great challenges of engaging with a global market is to effectively use a global tool to successfully engage with prospective customers in multiple geographic and cultural markets, with different languages, different product expectations, significantly different economic opportunities and disposal incomes, etc. The digital channels are also constantly changing and evolving, and a channel which is very popular and enjoys significant penetration in one geographic market may be virtually unknown in a different market.

One of the great revelations of “DigiMarketing” is in reviewing the hot Digital Marketing channels and players in 2008 compared with 2016. Google was the king of search, and remains the dominant search engine today. However, Facebook has completely eclipsed MySpace. From 2005 until April 2008 Myspace was the largest and dominant social networking site in the world, and in June 2006 MySpace actually surpassed Google as the most visited global website. Today MySpace is little more than a footnote in the history of social media, having recently been purchased by Time, Inc.

DigiMarketing isn’t a dry, boring, academic overview of the Digital Marketing landscape. Wertime and Fenwick have succeeded in creating an engaging, lively, and frequently entertaining guide to the exciting world of Digital Marketing. Examples of light-hearted and lively topics include “Cookies You Can’t Eat”, “Long-Tail Wags the Dog!”, and “Lies, Damned Lies, and Statistics”.

DigiMarketing remains a fantastic Digital Marketing reference book for anyone who is involved in the Digital space, or wishes to better understand the brave new world of Digital.

Frank T.

Masters in Business Podcast (Bloomberg Radio): Barry Ritholtz

I have long been a believe in the old adage that “Leaders are Readers”. In order to be an effective leader, it is necessary to continuously upgrade and update your knowledge in the most broad sense. Readers are not necessarily leaders; the mere act of reading does not transform a bookworm into a charismatic champion executive anymore than diligently studying J.K. Rowling can turn a muggle into a gifted wizard.

However, it can be difficult for a busy executive or manager, or an aspiring leader, to budget adequate time to read the books, newspapers, professional magazines, and trusted online resources to gain access to the incredible wealth and diversity of information available in our modern and fast paced age.

I typically spend at least 6 hours each week driving. I used to listen to music during my long drives. However, early last year I decided to turn off the music and invest the hours I spend behind the wheel listening to podcasts.

For those individuals who are struggling to keep up with the diverse array of modern digital media choices, a podcast is basically an audio recording that is available for download to your smartphone, PC, music player, or other form of digital media player. Since I am primarily invested into the Apple ecosystem, my preferred source for podcast is Apple iTunes.

One podcast which I have greatly enjoyed and highly recommend to anyone with even a casual interest in investing or financial management is “Masters in Business” featuring Barry Ritholtz and published by Bloomberg Radio.

Each week Barry interviews a successful and influential business person, and explores the unique technical, professional, and personal views and attributes that have contributed to the success of the interviewee and his / her business.

Most of Barry’s interviews are conducted with Wall Street icons and financial leaders, such as Bill Gross of Janis Capital, Richard Thaler of the University of Chicago Booth School, and Nobel Laureate of Economics Professor Paul Krugman. However, he also interviews successful business people including Dallas Mavericks owner Mark Cuban and Restauranteur / Iron Chef Mario Batali.

Barry is an engaging interviewer who has a gift for facilitating entertaining and informative dialogs and discussions. Whether the discussion is about high speed trading, portfolio weighting theories, or the most important attributes of restaurant design, Barry encourages his guests to share their most valuable insights underpinning their business success.

I highly recommend podcasts as a supplement to traditional hardcopy or digital books and periodicals to maximize the productive time available for continued learning and self-improvement.

Frank T.

Flash Boys: Michael Lewis 2014

Though I consider myself to be quite familiar with Corporate Finance and the vocabulary of Wall Street, I don’t have nearly as much familiarity and experience with trading and sophisticated investing.

“Flash Boys” was recommended to me many months ago, and I kept putting off reading the book because I wasn’t confident that I would find the world of high speed trading and issues such as “front running” to be interesting.

I have been recently and routinely listening to the Bloomberg “Masters in Business” podcasts hosted by Barry Ritholtz, which has greatly improved my knowledge of trading and investing, and the various strategies and issues commonly associated with this field. This finally inspired me to read “Flash Boys”.

Fear not … Michael Lewis has done a masterful job of introducing the modern concepts of electronic trading, high speed trading, the National Market System regulation, Black Pools, etc. In this regard, I will compare him to a financial version of Tom Clancy. Clancy had an amazing ability to introduce military technology, espionage, geopolitics, and strategy to take the reader on a riveting journey through his fictional world. Michael Lewis has managed to achieve nearly the same level of excitement, intrigue, suspense, and engagement in his non-fiction world of Wall Street shenanigans.

I believe that Lewis has done a great public service in recognizing and highlighting the heroic deeds of Brad Katsuyama and his team at IEX, the fair, investor-friendly stock market created by Brad. Perhaps more importantly, Lewis has totally exposed the fraudulent, manipulative, and fundamentally unfair trading practices that were, and continue to be, practiced by High Frequency Traders to unfairly front run trades to collect risk free returns.

It is true that the HFT guys are not stealing milk money from hungry school kids or retirement savings from grandma and grandpa. However, though the individual impact on each transaction may only be a penny per share, the cumulative impact has been billions of US dollars per year of risk free profit earned at the expense of the investing community with no socially redeeming or morally justifiable basis.

I thoroughly enjoyed and highly recommend “Flash Boys”, by Michael Lewis, and I look forward to reading some of his other books.

Frank T.

How Asia Works: Joe Studwell 2013

I found Joe Studwell’s 2007 book “Asian Godfathers” to be so interesting and valuable, that I decided to also read Studwell’s 2013 book “How Asia Works.”

During the second half of the 20th century, Asia witnessed rapid economic transformation. Japan, South Korea, Taiwan, and China have “produced the quickest progressions from poverty to wealth that the world has seen.”

Nearly all Asian states have achieved rapid economic growth and transformation. However, each state has pursued unique policies, and each has achieved a different level of transformation and success. Studwell diligently and patiently explores the different policies of various Asian states to determine which policies have been successful, and which have proven to be less successful or impediments to progress.

Studwell observes that there are three fundamental policies which have driven the successful transformation of Japan, South Korea, Taiwan, and China. He also carefully observes how Indonesia, Malaysia, the Philippines, Singapore, and Thailand were less successful in recognizing and implementing these three fundamental policies. Though these SE Asian countries did achieve significant levels of transformation and economic success, they failed to realize their full potential as compared with the East Asian states.

Studwell’s first fundamental policy is to transform farming into “large-scale gardening supported by agricultural extension services.” At first this seems counter-intuitive, as large scale industrial farming would seem to deliver the best opportunity to maximize yields and minimize costs. However, Studwell carefully demonstrates that the Philippines, where agricultural land ownership was not reformed, and large agricultural landowners control and manage farms on an industrial scale, fail to achieve the yield and efficiency of East Asian counterparts Taiwan, Japan, and South Korea. Agricultural success is vital to ensure adequate resources for the state, and also high efficiency to enable agricultural labor resources to be diverted from agriculture to industrial output.

The second fundamental policy is the “state direction of entrepreneurs towards state-defined industrialization objectives” to achieve “technological upgrading of manufacturing (as) the natural vehicle for swift economic transformation.” Studwell observes that “in south-east Asian nations, leading entrepreneurs were no less capable than those in other countries, but governments failed to constrain them to manufacture and did not subject them to export discipline.” SE Asian countries “fail(ed) to generate indigenous manufacturing and technological capacity” and instead relied upon high levels of foreign direct investment. Today Studwell observes that there are many globally recognized Japanese, Korean, and Taiwanese manufacturing brands, but in SE Asia our only recognizable brands are Singapore’s Tiger Beer and Thailand’s Singha and Chang Beer, which scarcely qualify as manufacturers.

The third fundamental policy is “interventions in the financial sector to focus capital on intensive, small-scale agriculture and on manufacturing development”, to “keep money targeted at a development strategy that produces the fastest possible technological learning, and hence the promise of high future profits, rather than on short-term returns and individual consumption.” Studwell explains that this policy is contrary to the short term interests of businessmen and consumers, who have shorter strategic horizons and interests.

Studwell organized “How Asia Works” as a series of “journeys” through Asia, exploring historical and first-hand observations of each country’s strategic policy framework, the success of implementation, and the results both internally and as compared to peer Asian states. The book is very enjoyable to read, quite informative, and certainly thought provoking.

Thailand can still take advantage of Studwell’s recommendations, especially with respect to agricultural reform. Thailand desperately needs effective agricultural extension services to support the technological transformation of Thailand’s farming practices.

I also hope the leaders in Myanmar, Laos, and Cambodia carefully read and consider Studwell’s observations and recommendations as they plot the course of their development journey.

Frank T.

BEPS: Base Erosion and Profit Shifting

Last week I had the privilege of attending the Business and Economics Committee Meeting of the American Chamber of Commerce in Thailand. Jack Sheehan, Partner at DFDL, and Steven Carey, MD of Quantera Global, gave a very interesting and informative presentation about BEPS.

Until very recently, I have heard almost nothing about the OECD BEPS initiative. BEPS stands for “Base Erosion and Profit Shifting” and it is basically an action plan to address aggressive transfer pricing (or perhaps more accurately described as “Transfer Mis-Pricing”) by multinational organizations to minimize or avoid taxation.

When companies conduct business across multiple jurisdictions, they frequently supply products or services to related entities. This creates opportunities for both double taxation of profits and also opportunities to shift profits between the related entities. Ideally, each company would honestly value products and services based on classical “arms-length” transfer pricing standards. This would allow profits to be earned by each entity in the jurisdiction where the profits are actually generated, and pay taxes on those profits accordingly.

However, it is becoming increasingly common for companies to adjust the pricing of products and services to shift profit from entities or jurisdictions with a high tax burden to an entity or jurisdiction with a low or no tax burden. Several companies, including Starbucks, Amazon, and Google, have recently been accused of aggressively implementing transfer pricing based profit shifting activities to avoid taxation on massive global earnings.

Dual tax treaties have been negotiated between many countries to protect companies and individuals from being double taxed on income arising from various types of cross border transactions. However, companies are now aggressively pursuing various loopholes and strategies to achieve “double non-taxation” on income, leveraging rules intended to protect them from double taxation on such income.

In early October 2015, the Organization for Economic Co-operation and Development (OECD) published its detailed 15 step plan to reform the system of international taxation. This plan, which is expected to be implemented by members nations of the OECD and other national jurisdictions starting in 2016, is potentially the most significant revision to the international system of taxation since the 1920’s.

One of the primary reforms proposed by the BEPS ties revenue recognition and profit more closely to real economic activity. This proposal is similar to the system of formulary apportionment, the kind of system used by the USA to tax corporations at the state level.

Thailand has also been closely monitoring Transfer Pricing issues, and in May 2015 issued a new Draft Transfer Pricing Act. This act will amend the Thai Revenue Code to implement measures to prevent tax evasion through the use of transfer pricing schemes. The Draft Transfer Pricing act has been approved by the Thai Cabinet and is expected to be enacted by late 2015 or during the first quarter of 2016.

Under the new Act, firms having related party transactions will be required to prepare and submit transfer pricing documentation. Such documentation must be submitted within 150 days of the end of an accounting period. Failure to submit transfer pricing documentation will be subject to a penalty of THB 400,000.

Transfer Pricing investigations are reportedly a top Thai government agenda, following the pace of other ASEAN countries. The Thai Revenue Department is also devoting more staff resources to Transfer Pricing investigations.

The Thai Government is reportedly closely monitoring and reviewing the BEPS recommendations. The Chinese government strongly backs the OECD BEPS proposals, but China is reportedly staking out its own proposals in a few specific areas in a bid to capture more taxes.

Many Thailand based companies, especially Thailand based subsidiaries of multinational companies, will fall under the jurisdiction of the new Transfer Pricing act, and will also likely be impacted when the BEPS rules are implemented and incorporated into existing Dual Tax Treaties. All Managers and Directors of such Thailand based companies should diligently review their exposure to Transfer Pricing related issues, and implement prudent measures to ensure compliance with Transfer Pricing rules.

It is a privilege to do business in Thailand, serve the Thailand community, and to earn profit from our Thailand based activities. Paying fair taxes in Thailand on profits derived from Thailand based activities is the honorable and just behavior of any responsible Thailand based entity, organization, or individual.

Frank T.

Redflags of Financial Statement Frauds: M. Joshi 2013

I was inspired to read this book as part of my continuing education in Corporate Governance and Directorship.

I was quite interested in learning more about about Financial Statement Fraud, but was worried that this topic would not be terribly exciting to read. I decided to first read “The Martian” by Andy Weir, with the personal commitment that I would explore Financial Statement Fraud as soon as I finished exploring Mars with Mark Watney. I found “The Martian” to be thoroughly enjoyable, exciting, and suspenseful; three adjectives which I doubted would apply to Mayur Joshi’s book.

“Redflags of Financial Statement Frauds” proved to be quite interesting and not too difficult to read. It certainly wasn’t as exciting as “The Martian”, but Joshi did a decent job of discussing different types of Financial Fraud and the signals that Auditors should watch for which might indicate fraudulent activities or intent.

Joshi actually wrote this book specifically for Indian Auditors. I was pleased to see a non-western perspective on Accounting and Auditing. I’m confident that Indian accountants and managers are no less creative than their western counterparts when it comes to “cooking the books”.

At times I did find the English grammar and composition to be a bit “unusual”. I think it would be unfair and perhaps inaccurate to accuse Joshi of poor grammar. However, Indian English is certainly a bit different than British, Australian, or American English.

“Redflags of Financial Statement Frauds” is only 80 pages long (based on my iBooks page formatting preferences). Thus, Joshi doesn’t waste any time or text on unnecessarily long explanations. This book is very direct, and each topic is introduced and explained as briefly and succinctly as possible. I found this approach to nicely satisfy my immediate expectations. It wasn’t my desire to become an expert on Financial Statement Fraud, but I did want to learn more about typical types of such fraud, and the warning signs of fraudulent activities and intent.

At times I did find myself wishing that Joshi had added a bit more detail or provided better examples of fraudulent entries. Clearly, it wasn’t Joshi’s intent for his book to be a handbook on best practices for committing Financial Statement fraud. However, I think he could have been a bit more generous with details, and I think this would have made the book both more interesting as well as informative.

In the chapter on “Improper Asset Valuations”, Joshi writes that “Profits can be inflated by increasing asset values.” I found this to be an interesting statement, and spent quite a bit of time trying to figure out how this could be possible. After some thought, I realized that profits can be increased by booking expenses as assets. These “expense assets” are then depreciated over several accounting periods instead of being immediately recognized, thereby increasing profit. This is one of many occasions when I would have preferred Joshi to have offered more detail to better explain the process of fraudulent accounting entries.

“Redflags of Financial Statement Frauds” is a short, inexpensive book which I would recommend to non-accounting professionals interested in Accounting Fraud. Though I do not recommend this book for accounting professionals, I must also advise that familiarity with basic accounting practices and terminology is a minimum requirement to appreciate this book.

I trust that the people who follow my posts are only interested in discovering and preventing fraud, as opposed to best practices for successfully committing fraud.

Frank T.

The Essential Drucker: Peter F. Drucker 2001

I truly believe that “The Essential Drucker” is one of the best business books I have ever read.

Management is a very diverse discipline, though the science of management is surprisingly recent. Modern management practices were only first employed by US and UK manufacturing firms during the period 1885 to 1910, and gained a degree of acceptance during the 1920s and 1930s. Drucker, who earned a Doctorate in International Law and Public Law in 1931, began his business consulting career in 1934 in the USA, literally at the dawn of modern business management. For 71 years, from 1934 until his death in 2005, Drucker’s lifelong pursuit was the theory and practice of management.

“The Essential Drucker” is a compilation of excerpts from many of Drucker’s books, publications, and articles. Drucker was a prolific writer, publishing 36 books on Management, two novels, and an autobiography. He also published numerous articles for a variety of leading business and economic papers and journals. “The Essential Drucker” is organized into 26 chapters, collecting the wisdom and theory of Drucker’s most influential works, from “The Practice of Management” (1954) through “Management Challenges for the 21st Century” (1999).

I found it fascinating to explore Drucker’s observations, theories, and recommendations on management. Not only does the book cover a great diversity of management topics, it also covers a great diversity of time and geography. Drucker draws from his experience working with and observing leading manufacturing companies, hospitals, military, and non-profit organizations in the US, Europe, and Japan, to develop and refine his recommendations on management theory and best management practice.

Reading the book, it was at times quite obvious that the excerpted material was many decades old. “The Essential Drucker” is already nearly 15 years old, and some of its material is 60 years old. However, I was struck by the realization that, whereas the words and examples were old, the wisdom still rang true and valid. I strongly believe that “The Essential Drucker” presents the best “time-tested” management theory and practice.

Though I am also growing older, and hopefully wiser, I do try to keep up with the evolution of technology. With rare exception, I read all of my books on my iPad. I was therefore pleased that “The Essential Drucker” is available as an ebook. This perhaps offers a further contrast, demonstrating that even vintage wisdom can be enjoyed using 21st century technology.

One of the best features of ebook readers is the ability to highlight text, create notes and annotations, and then review a summary of notes. I frequently revisit my ebook library, scanning through my book highlights looking for useful information. These notes also come in handy when I write prepare my blog book summaries.

In the case of “The Essential Drucker”, I believe I set a new personal record for the average density of page highlights. This book is simply jam-packed with useful information for any manager or executive.

To derive maximum personal benefit from Drucker’s 70 years of management wisdom, I have made a personal commitment to revisit this book early next year. I will diligently work my way chapter by chapter, reading each highlighted passage. This will allow me to efficiently and effectively review each topic which I found to be most important and informative. I aspire to periodically revisit Drucker whenever I feel the need to refresh and reinvigorate my management technique, or when I find myself struggling with an operational or leadership challenge.

One final comment on the benefit of ebooks: wherever I go, I always carry my iPhone, iPad, and/or MacBook. Drucker is on all three devices. Though Peter Drucker is no longer with us, by leveraging modern technology, I can consult with Drucker at any place or any time.

Frank T.