Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports, 3rd Edition
Howard Schilit, Jeremy Perler
Language: English
Pages: 336
ISBN: 0071703071
Format: PDF / Kindle (mobi) / ePub
From the “ Sherlock Holmes of Accounting,” the tools you need to stay a step ahead of the crooks
“Howard Schilit is the authority on forensic accounting. Financial Shenanigans is invaluable reading for market participants seeking to identify deceptive behavior in company financial statements.” Julian Robertson, legendary investor and founder, Tiger Management
“A must-read! The authors teach forensic financial statement analysis in an easy-to-digest format with lots of war stories. Guaranteed to help investors in their quest to avoid ticking time bombs in their portfolios.”
Marc A. Siegel, board member, Financial Accounting Standards Board
“This is a timeless guide to better understand how financial malfeasance can be spotted early. Financial Shenanigans teaches all of us fraud-detection-made-easy.”
Jules Kroll, pioneering private investigator and founder of Kroll Associates and K2 Global
“Required reading for every investor who desires to avoid financial losses. This new edition is a classic and better than ever.”
Thornton L. O’glove, author, Quality of Earnings
“If the original Financial Shenanigans was the Bible of detecting accounting frauds, then this latest version is the Talmud of cooked books. Regulators, audit committee members, and business journalists should be required to read this work if they are involved in public companies.”
Boris Feldman, partner, Wilson Sonsini Goodrich & Rosati, Palo Alto
“An incisive and entertaining review of the recipes used by corporations and executives to ‘cook the books.’ It’s a must-read for investors, lawyers, corporate directors, and anyone else interested in the integrity of the accounting and governance process.”
Joseph A. Grundfest, professor of law and business and codirector, Rock Center on Corporate Governance, Stanford Law School
About the Book:
With major financial scandals popping up in greater numbers―and with more inevitably on the way―it has never been more important for you to understand what dishonest companies do to trick investors. Since the early 1990s, Financial Shenanigans has been helping investors unearth deceptive financial reporting at the most critical time― before they suffer major losses.
Now, the third edition broadens its focus to include the newest, most sophisticated techniques companies use to mislead investors.
Referred to as the “Sherlock Holmes of Accounting” by BusinessWeek, Howard Schilit and renowned forensic accounting expert Jeremy Perler take you deeper into the corporate bag of tricks, exposing new levels of accounting gimmickry and arming you with the investigative tools you need to detect:
- Earnings Manipulation Shenanigans: Learn the latest tricks companies use to exaggerate revenue and earnings.
- Cash Flow Shenanigans: Discover new techniques devised by management that allow it to manipulate cash flow as easily as earnings.
- Key Metrics Shenanigans: See how companies use misleading “key”metrics to fool investors about their financial performance.
Financial Shenanigans brings you completely up to date on accounting chicanery in the global markets, shining a light on the most shocking frauds and financial reporting miscreants. This insightful, detailed guide written by recognized experts on the subject provides the knowledge and tools you need to spot even the most subtle signs of financial shenanigans.
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and real estate owned was $239.4 million compared with $236.5 million at June 30, 2006. These amounts represent 1.68 percent and 1.47 percent of the unpaid principal balance of the mortgage loan portfolio, respectively. [Italics added for emphasis.] * * * By simply changing the presentation of a key metric, New Century (1) avoided a devastating announcement and tricked investors into thinking that its loan loss reserve had increased, (2) pretended that its asset quality had not been
charges that serve to convert ordinary expenses to a one-time expense • Unusually smooth earnings during volatile times * * * Cash Flow Shenanigans Part 3. Part 3 expands the discussion to the Statement of Cash Flows. Since investors have started placing more emphasis on cash flow from operations (CFFO), not surprisingly, management has tried to perfect a new class of shenanigans—those that inflate the CFFO. Four general Cash Flow (CF) Shenanigans are used to inflate CFFO, and they
provided. While these arrangements are guided by accounting methodologies permissible by generally accepted accounting principles (GAAP), the timing of revenue recognition is very sensitive to discretionary management estimates. In this section we discuss several of these arrangements and provide advice on how to spot instances in which management might be using overly aggressive estimates. Specifically, we cover (1) long-term construction contracts that use percentage-of-completion accounting,
and, as a result, would keep all this new debt off its Balance Sheet. Moreover, Enron believed that this complicated structure would also help it hide the expected economic losses (or, whenever possible, pull in gains) from these early-stage ventures. Interestingly, the capital that Enron contributed to some of these joint ventures turned out to be nothing other than its own stock. In some cases, the partnerships themselves even held Enron stock among their investment holdings. As its stock
Crossing discloses that $375 million of its $441 million in EBITDA (earnings before interest, taxes, depreciation, and amortization) came from sales to customers “to whom the Company made substantial capital commitments during the quarter.” Page 16 reminds readers that Global Crossing purchased capacity from customers and states that “new capital commitments total an estimated $625 million.” Raise Your Antennae When You See a Boomerang Transaction. Once you identify a boomerang
