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  "documentTitle": "New Oriental Education & Technology Group (EDU)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Carson Block",
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  "presentationDate": "2012-07-18 00:00:00",
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  "notes": "The slide uses a narrative about a BOC scheme to frame the argument that EDU's decreasing audit fees despite company growth are suspicious.",
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      "text": "If it is clear that on a standalone basis EDU is not paying for a quality audit. It is ever more obvious when comparing its peers.",
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      "text": "Audit Fees: 932",
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      "text": "This is all relevant to EDU because as EDU adds stores, it adds bank accounts. Typically, each store will have at least one bank account—often more. The cash movements become more numerous, more complex and to and from more places, generating increasing amounts of paper records. The opportunities for EDU to game cash balance therefore increase. Despite EDU's greater complexity calling for more audit firepower, EDU's audit fees have decreased significantly since 2007, which was its first full year as a public company. During this time, there was significant inflation in China of accountant's salaries, so we assume that Deloitte's cost per man-hour increased during this time. For Deloitte to charge 1/3 less than in 2007 while auditing a network almost 3x as large, all while paying accountants more, is risky.",
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      "text": "Block would have moved money into an account at a designated BOC branch in Shanghai. He would have then been free to remove the money the following Monday or Tuesday. For his efforts, he would have received weekly interest payments that would have exceeded 20% on an annualized basis. Mr. Block surmised two things at the time a) for him as a white foreigner to have been invited to participate, the scheme must have been enormous; and, b) this program was likely designed to help BOC managers meet reserve requirements, which managers were otherwise unable to meet because they had illicitly extended too many loans (Mr. Block declined to participate).",
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      "text": "If it is clear that on a standalone basis EDU is not paying for a quality audit. It is ever more obvious when comparing its peers. EDU paid less for its 2011 audit than any of its US-listed peers, despite reporting significantly greater size and geographic reach. (As we discuss in EDU and Its Public Comps: Too Good to be True, we think that financials of the other companies in this industry generally should be viewed with skepticism.)",
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