Posted on Tuesday, January 8, 2013 by sccl_smart_investing

Financial Shenanigans Financial Shenanigans  Certainly, most companies are ethical, but some do take advantage of reporting gray areas or ignore the rules in order to present financial results with a deceptively positive spin or in an altogether misleading way. Given the potential for accounting manipulation and gimmickry, financial statement readers need to exercise skepticism and rigorous due diligence. Schilit and Perler, two recognized forensic accounting experts, have revised and updated their 2002 title. The book hits hard on the many changes in GAAP accounting and how masterful accountants try to fool business analysts with gimmickry. What I like most about the book is that it doesn't’t just expose the tricks that businesses use to fake their financials. Instead, the authors go to great lengths to give examples, and then explain how you can fact check the accounting of any public company.   In total there are:

  • 7 Earnings manipulation shenanigans – These run the gamut from simple revenue recognition discrepancies to very disingenuous sales processes that allow a company to record revenue before a sale is even made. The author boosts this section of the book with high-quality examples from leading public companies including Sunbeam and IBM. You won’t believe the extent to which high-profile companies report earnings beats with fictitious accounting numbers.
  • 4 Cash flow shenanigans – The cash flow statement is one of the most difficult to engineer – a company produces cash, or it doesn't’t. However, accounting teams still have four methods to boost cash flows