Nine thousand companies in developing countries to be assessed for risk of fraud, financial re-statements and class-action lawsuits
GMI Ratings will significantly expand its coverage of companies in emerging markets with ratings that reflect governance and accounting risks due to growing demand from clients, the company has announced.
GMI, which provides research, data and analytics on ESG issues, says it will include ratings of 9,000 companies in emerging markets in its current offering of accounting and governance risk (AGR) ratings.
‘Our global investor clients have expressed a strong need for emerging market ratings, and we are pleased to provide them with comprehensive ratings and data to better understand the potential risks they may face,’ says Agnes Grunfeld, managing director of AGR ratings at the firm, in a press release.
The ratings for emerging markets companies will be based on 50 metrics in five high-risk areas: revenue recognition, expense recognition, asset liability valuation, high-risk events and governance practices. AGR ratings for companies in developed markets are based on 60 metrics, and GMI hasn’t said how the ratings will differ.
The company has divided emerging markets into two regions for the purpose of AGR ratings: one with companies that have adopted IFRS and another with companies that still use local GAAP.
GMI, which is to be acquired by stock index provider MSCI according to an official agreement signed last month, already provides AGR data for 20,000 developed markets companies in a rating it says can be an indicator of potential class-action suits, fraud, financial restatements and other risks.
‘Due to increasing market globalization, investors have a greater need for visibility into the accounting practices of companies in emerging market countries,’ GMI says in its announcement. ‘Investors can integrate GMI’s AGR emerging market ratings into their financial models to identify and mitigate portfolio risks, deepen their quality of earnings analysis, prepare for analyst calls or meetings with portfolio companies, and anticipate high-impact events that may not be detected by traditional methods.’
