Intellectual company financial reporting

SEC Investigates New Oriental VIE Structure. Let the Chatter Begin.  September 17, 2012 – 03:19 pm
Chinese education company New Oriental, which is listed in the U.S. on the New York Stock Exchange (NYSE: EDU), included this little bomblet in a July 17 earnings press release:

On July 13, 2012,  the Company was informed that the U.S. Securities & Exchange Commission (the “SEC”) had issued a formal order of investigation captioned “In the Matter of New Oriental Education & Technology Group Inc.”  The Company believes that the investigation concerns whether there is a sufficient basis for the consolidation of Beijing New Oriental Education & Technology (Group) Co., Ltd., a variable interest entity of the Company,  and its wholly-owned subsidiaries, into the Company’s consolidated financial statements.

Oh my. Grab a cup of coffee and strap in. This will take a few minutes to unpack.

It’s been a while since we talked VIEs. If you recall, the VIE structure refers to a corporate structure used by many Chinese companies that list overseas. The pieces of the puzzle include the Chinese domestic operating company (the VIE), an offshore entity that has wholly foreign owned subsidiaries (WFOEs) in China, and legal agreements between the VIE and the WFOE(s).

Source: China Hearsay

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IBM yesterday became the latest victim of the anxiety on Wall Street amid concerns over how the computer maker accounted for the sale of a division at the end of last year.
The worries also hit WorldCom, the troubled telecoms firm, which said it had suspended a number of sales staff for inflating their figures to meet commission targets.
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The acquisitive conglomerate argues that only large-scale acquisitions are material to its business and therefore need to be disclosed.

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