S. Korea

1
S. Korea PeruQ2s about fast food in Russia

• McDonalds slow growth planwhy?
• W/ McDonalds doing so well, why doesnt KFC move
  into Russia, too?

2
Russiathen vs. now

• 1999 US Govt Economic Outlook for Russia
  report DONT GO THERE.
• Now part of the BRIC acronym
• 1.5B fast food market w/ 25 growthMoscow is
  0.6B. (Kommersant.com)
• Simple Plan Open More Stores.
• ACCT 2301 Q Why not borrow infinitely?

3
Just Open More Stores?

• Up to 200 signatures to open a new storehmmmcan
  delay payoffs happen to signing parties?
• Ten fold increase in property (recent)a bubble?
• Ruble conversion (restrictive rules)
• Need to constantly reset prices (planned at four
  times per year)
• Beef supply problems.
• Current low unemployment (hard to get new
  workers).

4
Rostiks KFC vs. McDonalds Plan

• New store growth vs. same store growth
• R-KFC, 122 restaurants (May 07), plans to open
  300 more in the next four years (WSJ 10/16/07,
  p. A1)
• McDonalds, 180 restaurantsbut adding slowly
  (only 12 new this year)and focusing on existing
  store growth. (same article)
• Why the strategy difference?
• Lesson Co-branding seems to have a new store
  speed advantagewhy do you think that is so?

5
McDonalds Slow Plan(aka, we plan to stay
disciplined

• Advantages of decentralization
• Walk-up windows
• the Fresh McMuffin
• the 14-second bun browner
• Trying something different in different
  situations isnt necessarily a bad thing.

6
Interesting Article

• See the hyperlink if it interests you.
• What to get out of this issue
• To compete internationally, much need to know
  information requires an in-depth understanding of
  the business environment (KPMG Career Portal
  linkoddly similar to the PWC movieswith
  emphasis on oddly).
• As an auditorwhat are the reporting incentives?
  McDs ? break out Russia why not? What if they
  had to? (When would they need to?) What should
  your audit radar tell you?

7
Advising Break

• ACCT 5311 pick an alternative elective
• May 08 Grads Ill waive ACCT 5309pick an
  alternative elective (footnote not all ACCT
  faculty would agree w/ thisbut Dr. Ricketts does
  will slightly modify ACCT 5334 to compensate)
• ACCT 5309 is likely to be Summer 1, not Summer 2.
• May 08 S1 08 grads If you need ethics, we will
  create a special offering just for youbut
  details are currently not finalized.
• Phil 4000 people Make sure you get a signed
  letter from the chair stating the equivalence of
  Phil 4000 Phil 3323 before you graduate (it
  may make your life easier in the future).

8
Q2 Argentina WB Abu Dhabi
9
SassyIn Progress

• Why do you think the AICPA keeps issuing SAS
  statement?
• Hasnt their power / reason for being been
  usurped by the PCAOB?

10
What Does Final Exam Mean?

• We needed more time.
• The individual final exam is not a freebie.
• After viewing Chris and Tanner next week, let me
  know (sometime soon) if you wish to have an
  individual final examobviously, we dont have
  enough time for everyone.
• Fair ? equal.

11
Things we will work on

• economics vs. reporting how these concepts
  arent necessarily independent (beyond the
  obvious sense)e.g., yesterdays WSJ articles.
• capitalizing annuitiesone thing I got from my
  grad. finance class (Klaus T.)
• somehow this all ties into quite a few business
  questionswhich should produce some interesting
  discussionsomehow, this all ties into the JIS
  storyand the Steve K storyhopefully Ill figure
  out how that works by next weekright now, I need
  to post these slides before class startsbut
  dont pack upI made the finish already.
• Comingat least in partnext week.

12
Q2 Iran

• Layoffs in the housing-market industry, etc will
  the slowdown continue?

see da peopleday are happyday have diabers
and food ABC news (10/23)
"Anybody that is complaining about the planes
just wants to complain because there's a bunch of
nonsense," we could have all the planes in the
world here we have 90 aircraft here and six that
we got especially from the federal government and
they can't fly because of the wind situation."
13
(No Transcript)
14
Opening

• Las Vegas was once the hottest of the red-hot
  real estate markets. But when sales really
  started choking up last year, developer KB Home
  (KBH ) did something drastic. Determined not to
  be caught with a big backlog of unsold homes
  through one of the industry's notorious down
  cycles, the builder started slashing prices. A
  lot. In the 1,400-home Huntington community, a
  subdivision of two-story stucco houses west of
  the famed Strip, homes that started at 320,000 a
  year ago are now listed for 270,000--just a
  starting point for potential deals

15
What Happens Next?

• On Sept 14th, Hovnanian Enterprises kicked off
  the 72 hour deal of the Century by slashing
  prices by 100k across 19 states.
• On Sept. 29th, D.R. Horton auctioned off 53
  houses at half off the listing price.
• Standard Pacific launched Mission Possible
  promising 20 million in total discounts.

16
What Economic Concept Is this?
¾

17
The Public CEO Statements

• juxtaposed statements
• late 2006 vs. very recent
• Our position is the strongest its ever been
• vs.
• We arent predicting a recovery because we dont
  see one on the horizon

18
Sensible Statements?

• "It's unfortunately a necessary part of the
  process," says Richard J. DeKaser, chief
  economist for Cleveland lender National City
  Corp. (NCC ) "Once you see developers acting as
  aggressively as they are, the rest of the housing
  market is not too far behind."

19
Sensible Statements?

• "They're better off clearing the showrooms than
  sitting on an asset that's likely wasting," says
  Lawrence J. White, a professor of economics at
  New York University's Stern School of Business.
  "That's like idle capacity on a factory floor."

20
Sensible Statements?

• Permits are down 49 from the market's September,
  2005, peak. That's half the time it took to reach
  this point in the last decline. "Builders
  definitely responded more quickly this time, and
  that's a good thing," says Banc of America
  Securities analyst Daniel Oppenheim.

21
Stock Price Movement KB Home
22
Stock Price Movement KB Home
23
Privately did anyone see it coming?

• As a forensic auditor what would you look for?
• Forensic auditing could be defined as the
  application of auditing skills to situations that
  have legal consequences.
• -A.N. Chatterji (some article I found on the
  internet)

24
Are there possible legal consequences for
homebuilders?

• Why?
• When you say everything is great, but you take
  (or took) actions suggesting otherwise, you have
  possible legal consequences.
• Why not?
• The who knew defense.

25
Public vs. Private Statements

• late 2006 vs. very recent
• Our position is the strongest its ever been
• vs.
• We arent predicting a recovery because we dont
  see one on the horizon

• Evidencewho knew what when.

26
Privately did anyone see it coming?

• As a forensic auditor what would you look for?
• Forensic auditing could be defined as the
  application of auditing skills to situations that
  have legal consequences.
• -A.N. Chatterji (some article I found on the
  internet)

27
W 9/ 10 / maybe 11/ etc. Assignment Whos Your
Builder?
28
Setting

• You are a forensic auditor working for a law firm
  representing investors in a class action suit
  against your builder.
• The suit is based on public statements about how
  everything is good made by your companys CEO as
  of the end of 2006 (accept this as true for each
  company).

29
Setting

• As a forensic auditor, you are searching to find
  evidence to the contrary in public accounting
  records (limit yourself to annual reports, 10Ks,
  and 10Qs).

30
Week 9 Assignment (due next weekbring it to
class).

• Get to know your company by reading through some
  public documents (bring this to class in your
  mind)dont look at anything older than 2003.
• Document (and hand in) interesting things about
  your company that you would like to compare to
  competitors.
• All preliminary evidence suggesting the CEO knew
  otherwise and briefly explain why your evidence
  is useful for this purpose.

31
Next Week

• Hand in two copies of your final Assignment 8.
• Hand in two copies of your Week 9 report (must be
  less than five pages).