Financial Shenanigans: How to Detect Accounting Gimmicks and Fraud in Financial Reports

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9780070561311: Financial Shenanigans: How to Detect Accounting Gimmicks and Fraud in Financial Reports

Prospective investors and lenders should understand that some companies in hot water try to hide the fact with "creative accounting" techniques that provide a distorted picture of their financial health. Other companies, not on the skids, can be tempted to paint a rosier picture than justified by the facts. Fortunately, there are equally sophisticated methods for spotting the signs of accounting chicanery in virtually any financial condition. This book provides investors and lenders with 50 powerful tools for uncovering accounting gimmicks to get a true reading of a company's financial condition. This no-nonsense guide draws on eye-opening case histories of major companies whose recent accounting "shenanigans" brought in millions of investment dollars before they were exposed. Building on the specific lessons learned from these cases, "Financial Shenanigans" shows investors, lenders, auditors, regulators and others how to immediately spot such misleading accounting tricks as: recording revenue prematurely; recording bogus revenues; boosting income artificially with one-time gains; shifting current expenses to a later period; failing to record or disclose major liabilities; shifting current income to a later period; and shifting future expenses to the current period. Plus there are tips on checking the balance of inventory, sales, and receivables, scrutinizing statements of cash flows, and more.

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From the Publisher:

? Current, up-to-date edition written by a leading expert in the area of financial research and accounting fraud
? Early warning signs of shenanigans and how to identify them
? The old tricks with the new variations of each shenanigan
? Biggest accounting frauds in the last decade
? New shenanigans for the Internet age
? Updated, real-world examples, including Snapple and Microsoft
? New focus on international shenanigans
? Revised introductions for each shenanigan
? Reworked Preface with latest information and explanation of the new “tricks”

From the Back Cover:

"Regulators, outside auditors and investors should all keep a copy handy."—Barron's

Secrets for Protecting Yourself—­­and Your Investments­—from Today's New Breed of Financial Schemes and Scams

Inflated profits ... questionable write-offs ... hidden expenses ... These and other dubious financial maneuvers have become more widespread, and harder to detect, as companies pull out the stops to satisfy Wall Street. Financial Shenanigans, 2nd Edition, describes how investors and analysts can use today's state-of-the-art tools and tactics to decipher convoluted financial reports­­and identify early warning signs that a company is in trouble.

Praise for previous editions of Financial Shenanigans...

"Is there any way an ordinary investor can protect against being torpedoed by financial scams and gimmicks? ... The answer lies in investors, large and small, becoming more skeptical and informed consumers of glowing financial reports, and efforts like Schilit's may help us get there."­­ —Louis Rukeyser

"Financial Shenanigans is must reading for every investor who desires to avoid financial losses created by the mine fields associated with 'generally accepted accounting principles.'"­­ —Thornton L. O'glove, Publisher, Quality of Earnings Report

"Deftly guides analysts through the obstacle course which financial statements can present. Financial statement users will find that study of the many examples and case studies presented in this work will greatly aid their financial task."­­ —Leopold A. Bernstein, Author, Financial Statement Analysis: Theory, Analysis, and Interpretation

"Indispensable to investors who are so often victimized by 'cooked books,' as well as those attorneys, forensic accountants, and government regulators whose work involved the discovery and pursuit of financial statement fraud."­ —William S. Lerach, Partner, Milberg Weiss Bershad Specthrie & Lerach

Today's tumultuous corporate and financial markets and blinding new technologies combine to make accounting fraud much more high-impact and difficult to detect than in the past. As an investor or decision-maker, you must arm yourself with the latest investigative tools and techniques­­or run the daily risk of falling prey to these increasingly complex, costly scams and schemes.

Financial Shenanigans, 2nd Edition, helps you fight fire with fire, giving you the state-of-the-art weapons you need to identify warnings of a company's problems before earnings come out and the damage becomes irreversible. Detailing the seven fundamental tricks that companies have used to fool auditors and investors for decades, yet providing updated information and techniques on how these shenanigans are being used in today's technologically advanced, financially savvy investment world, this fast-paced book provides updated explanations of how anyone can uncover and sidestep:

  • Revenue tricks­­—Side agreements lacking economic substance, investment income listed as revenue, release of revenue improperly "held back" before a merger, and more
  • Expense traps­­—Shifting of current expenses to an earlier period, costs amortized too slowly, impaired assets not written down, and others
  • Liability scams­­—Failure to record expenses and their related obligations, creation of sham rebates, reducing liabilities by changing accounting assumptions, and more

Also included in this one-of-a-kind primer are recommendations of oversight committees charged with investigating questionable financial practices. Insights are provided into history's most well-known and financially devastating frauds­­including the all-too-familiar warning signs behind this decade's massive Enron debacle. Numerous checklists, graphs, tables, and an accounting tutorial appendix make in-depth explanations both clear and accessible, even for those with little or no background in accounting or financial analysis.

Though much has changed in today's business world, dishonest company executives will still stretch and even hide the truth in their search for faster revenue growth, attractive balance sheets, and higher stock prices. Financial Shenanigans digs deep into both the age-old psychology and up-to-the-minute tactics of corporate greed, and provides a step-by-step procedure for looking into a company's black-and-white financials to protect your investment­­while you still have an investment to protect.

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