Ambit Capital research discussed the Indian IT sector companies based on their corporate governance report: Following are abridged excerpts of the report for three companies:

Firm A: This firm was unable to curb the illegitimate activities in one of its subsidiaries. It owns large number of such exchanges. Further analysis indicates suspicious manipulation of subsidiary accounts to present a better picture at standalone business.

Firm B: Receivable days increased to 300 days in the current year compared to 120 days in the previous year; whilst the doubtful debt provisioning has increased to 12% of debtors (previous year was 10% of revenues).

Firm C: Margins appear to be overstated given the accounting policies and estimates that are different from its peers. Its accounting policy of excluding reimbursements both from income and cost (contrary to accounting policy followed by most peer companies) benefits its margins by approximately 0.5%.

The newspaper titled these three companies as: ‘Suspicious subsidiary accounts; corporate governance concerns’; ‘Magnified margins’; and ‘Are the revenues real’?

You are required to match these three titles with the appropriate company paragraph’s above. Give reasons for the same. What are the corporate governance issues in each of the above case? Which stakeholder would be getting hurt the most in each of the above case?

What is the degree of ‘earnings management’ in each of the case above? Discuss.

What type of analysis would have detected each of the above? Discuss.