Investment Strategist, Transparently.AI

Mark Jolley

Investment Strategist

AI detection of accounting fraud and manipulation

Transparently.AI

Fraud and manipulation of their numbers see companies lose USD1 trillion+ per year for their stakeholders. Transparently.AI has developed an AI system that determines:

1. The likelihood that a company is committing fraud/serious manipulation of their books;
2. Whether it is serious enough to result in total corporate failure;
3. Estimated $ losses to stakeholders;
4. How that manipulation/fraud evolves through time; and
5. Detailed analytics on the forms of manipulation/fraud (e.g. which parts of the accounts, what tricks of the trade, questions for analysts to ask management, where/how to investigate further, etc.).

This is effectively automating the analysis of forensic accountants, activist short sellers, credit analysts, etc to do work that would typically take weeks per company, and instead run it in seconds and for thousands of companies simultaneously.

Critically, this solution frequently alerts users to the presence of serious manipulation risk up to 2-3 years in advance of the wider market and short sellers becoming aware of problems.

Forensic Accounting

<ul>
<li>Accounting fraud costs the global economy at least US$1 trillion each year in losses to investors, suppliers and consumers</li>
<li>Detecting accounting fraud early gives investors valuable intel to rethink certain stock or bond holdings.</li>
<li>Transparently.AI's AI-powered solution is highly accurate in measuring and detecting accounting manipulation and fraud.</li>
</ul>


Accounting fraud costs the global economy at least US$1 trillion each year in losses to investors, suppliers and consumers
Detecting accounting fraud early gives investors valuable intel to rethink certain stock or bond holdings.
Transparently.AI's AI-powered solution is highly accurate in measuring and detecting accounting manipulation and fraud.


Using AI to Detect Fraud and Protect Your Investments

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

<ul>
<li>
Another Fraud In The Philippines: Nearly 700 BDO Unibank customers have reported unauthorized account transactions of between PHP 25,000-PHP 50,000 with accounts at UnionBank of the Philippines (UBP PM);</li>
<li>
Small Risk:Assuming that the affected customers are capped at 700, losses from this incident would amount to USD 700,000 – well under 1% of consensus forecasts for 2022; and</li>
<li>
Weak Fundamentals: Net new NPLs increased an alarming PHP 17.8 bn or 115.8% annualized.  BDO’s reserves are light in the neighborhood of PHP 66 bn or six quarters of results.</li>
</ul>



Another Fraud In The Philippines: Nearly 700 BDO Unibank customers have reported unauthorized account transactions of between PHP 25,000-PHP 50,000 with accounts at UnionBank of the Philippines (UBP PM);

Small Risk:Assuming that the affected customers are capped at 700, losses from this incident would amount to USD 700,000 – well under 1% of consensus forecasts for 2022; and

Weak Fundamentals: Net new NPLs increased an alarming PHP 17.8 bn or 115.8% annualized.  BDO’s reserves are light in the neighborhood of PHP 66 bn or six quarters of results.


Forensic Analyst

Jason Yap, CFA

<ul>
<li>A balance sheet is also known as a "statement of financial position", it provides a snapshot of a company's assets and liabilities at a certain point in time</li>
<li>Given its relative significance as a barometer of a company's financial and operating efficiencies, the balance sheet is susceptible to fraudulent misstatements </li>
<li>In the 3rd and final part of this series, we discuss the Balance Sheet Shenanigans Key Metrics</li>
</ul>


A balance sheet is also known as a "statement of financial position", it provides a snapshot of a company's assets and liabilities at a certain point in time
Given its relative significance as a barometer of a company's financial and operating efficiencies, the balance sheet is susceptible to fraudulent misstatements 
In the 3rd and final part of this series, we discuss the Balance Sheet Shenanigans Key Metrics


Forensics 101 - Balance Sheet Shenanigans and Key Detection Metrics

Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

<div>DAX is a blue-chip index that now tracks the 40 largest companies listed on the Regulated Market of the Frankfurt Stock Exchange. Historically DAX has consisted of 30 companies but following the <a href="https://www.smartkarma.com/entities/wirecard-ag" target="_blank" data-smartkarma-citation="entities:21743:1" rel="noopener">Wirecard AG (WDI GR)</a> scandal, the index was reconstituted and the number of constituents was increased from 30 to 40 to reduce concentration issues and more stringent eligibility requirements were introduced to protect the overall quality of index constituents in future. This reconstitution was completed on 20th September 2021. </div><div>
The DAX Index is reviewed four times a year. In our previous insight, <a href="https://www.smartkarma.com/insights/dax-index-quiddity-leaderboard-for-december-2021" target="_blank" data-smartkarma-citation="insights:58053" rel="noopener">DAX Index: Quiddity Leaderboard for December 2021</a> we had a look at the potential adds and deletes for the next review which will take place in December 2021.
Below is a follow-up insight discussing the latest changes to Quiddity's DAX Leaderboard. 
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/237/299/original/Screenshot+2021-10-25+at+3.35.00+PM.png?1635147369" class="editor-image img-responsive" data-smartkarma-image-id="237299"></figure></section>
</div>

DAX is a blue-chip index that now tracks the 40 largest companies listed on the Regulated Market of the Frankfurt Stock Exchange. Historically DAX has consisted of 30 companies but following the Wirecard AG (WDI GR) scandal, the index was reconstituted and the number of constituents was increased from 30 to 40 to reduce concentration issues and more stringent eligibility requirements were introduced to protect the overall quality of index constituents in future. This reconstitution was completed on 20th September 2021. 
The DAX Index is reviewed four times a year. In our previous insight, DAX Index: Quiddity Leaderboard for December 2021 we had a look at the potential adds and deletes for the next review which will take place in December 2021.
Below is a follow-up insight discussing the latest changes to Quiddity's DAX Leaderboard. 



DAX Index: Quiddity Dec21 Leaderboard Update (2.0)

In the past 4 decades, there is no lack of hedge funds focused on short-selling strategies that incorporate forensic research into their investment process. Often, the forensic research is focused on uncovering companies' vulnerabilities and betting that their stock price will fall.  
More recently, large funds have increasingly incorporated forensic accounting and investigative research techniques into their investment process, hiring former forensic accountants and investigative journalists.  The massive frauds in 2020 such as Wirecard and Luckin have brought such application of forensic accounting to the fore.
When it comes to investing, knowing what to buy is just half the equation. However, over time, facts change and/or the investment hypothesis may be wrong, which leads investors to consider resizing or exiting the existing position. In this context, the use of forensic accounting and investigative tools and techniques can be a more illuminating source of information compared to reading sell-side reports or industry research reports. 
In this Insight, we discuss how investors can incorporate forensic accounting into the investment process and bridge existing knowledge gaps of traditional fundamental analysis, with the aim of maximising portfolio returns.

In the past 4 decades, there is no lack of hedge funds focused on short-selling strategies that incorporate forensic research into their investment process. Often, the forensic research is focused on uncovering companies' vulnerabilities and betting that their stock price will fall.  
More recently, large funds have increasingly incorporated forensic accounting and investigative research techniques into their investment process, hiring former forensic accountants and investigative journalists.  The massive frauds in 2020 such as Wirecard and Luckin have brought such application of forensic accounting to the fore.
When it comes to investing, knowing what to buy is just half the equation. However, over time, facts change and/or the investment hypothesis may be wrong, which leads investors to consider resizing or exiting the existing position. In this context, the use of forensic accounting and investigative tools and techniques can be a more illuminating source of information compared to reading sell-side reports or industry research reports. 
In this Insight, we discuss how investors can incorporate forensic accounting into the investment process and bridge existing knowledge gaps of traditional fundamental analysis, with the aim of maximising portfolio returns. 

Forensics 101: Incorporating Forensic Accounting into the Investment Process

Germany

Wirecard AG offers Internet payment and processing services.  The Company provides software and systems for online payment, electronic funds transfer, fraud protection and enterprise solutions.  Wirecard also offers call center services.

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Wirecard AG (WDI GR)

Using AI to Detect Fraud and Protect Your Investments

Accounting fraud costs investors, consumers and suppliers around the world $1 trillion annually. Early detection with Transparently.AI's solution...

Mark Jolley

BDO Unibank – Small Hit, Big Problem

BDO UNIBANK: Nearly 700 BDO customers have reported unauthorized account transactions. Losses are small, but reputational risk is high. Add this...

Thomas J. Monaco

Forensics 101 - Balance Sheet Shenanigans and Key Detection Metrics

A balance sheet provides a snapshot of a company's assets and liabilities. Given its significance as barometer of financial strength, it is...

Jason Yap, CFA

DAX Index: Quiddity Dec21 Leaderboard Update (2.0)

The DAX Index is reviewed four times a year. In this insight, we take a look at the Potential Deletes and Potential Adds for the upcoming review in...

Janaghan Jeyakumar, CFA

Forensics 101: Incorporating Forensic Accounting into the Investment Process

Large funds have incorporated forensic accounting and investigative techniques into their investment process, hiring forensic accountants and...

Jason Yap, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Using AI to Detect Fraud and Protect Your Investments

​Accounting fraud costs investors, consumers and suppliers around the world $1 trillion annually. Early detection with Transparently.AI's solution...

Mark Jolley

BDO Unibank – Small Hit, Big Problem

BDO UNIBANK: Nearly 700 BDO customers have reported unauthorized account transactions. Losses are small, but reputational risk is high. Add this...

Thomas J. Monaco

Forensics 101 - Balance Sheet Shenanigans and Key Detection Metrics

A balance sheet provides a snapshot of a company's assets and liabilities. Given its significance as barometer of financial strength, it is...

Jason Yap, CFA

DAX Index: Quiddity Dec21 Leaderboard Update (2.0)

The DAX Index is reviewed four times a year. In this insight, we take a look at the Potential Deletes and Potential Adds for the upcoming review in...

Janaghan Jeyakumar, CFA

Forensics 101: Incorporating Forensic Accounting into the Investment Process

Large funds have incorporated forensic accounting and investigative techniques into their investment process, hiring forensic accountants and...

Jason Yap, CFA

Accounting fraud costs investors, consumers and suppliers around the world $1 trillion annually. Early detection with Transparently.AI's solution...