Financial Shenanigans : How to Detect

Techniques to uncover and avoid accounting frauds and scams Inflated profits . . . Suspicious write-offs . . . Shifted expenses . . . These and other dubious financial maneuvers have taken on a contemporary twist as companies pull out the stops in seeking to satisfy Wall Street. Financial Shenaniganspulls back the curtain on the current climate of accounting fraud. It presents tools that anyone who is potentially affected by misleading business valuationsshy;shy;from investors and lenders to managers and auditorsshy;shy;can use to research and read financial reports, and to identify early warning signs of a company's problems. A bestseller in its first edition, Financial Shenaniganshas been thoroughly updated for today's marketplace. New chapters, data, and research reveal contemporary "shenanigans" that have been known to fool even veteran researchers.

Howard M. Schilit, Ph.D., CPA, is president of the Center for Financial Research and Analysis (CFRA), a leading independent financial research organization, and is one of today's leading authorities on detecting accounting gimmicks. Dr. Schilit, a former professor at American University, has been quoted or featured in numerous business publications including The Wall Street Journal, BusinessWeek, Fortune, and The New York Times, and has appeared on CNBC, CNN, and other networks. He is also the coauthor of Blue Chips and Hot Tips.

Preface: Must Be a Sign of the Times

v

PART ONE: Establishing the Foundation

1

(60)

You Can Fool Some of the People All of the Time

3

(20)

Seek and Ye Shall Find

23

(18)

Searching for Shenanigans

41

(20)

PART TWO: The Seven Shenanigans

61

(116)

Shenanigan No. 1: Recording Revenue Too Soon or of Questionable Quality

63

(20)

Shenanigan No. 2: Recording Bogus Revenue

83

(14)

Shenanigan No. 3: Boosting Income with One-Time Gains

97

(16)

Shenanigan No. 4: Shifting Current Expenses to a Later or Earlier Period

113

(24)

Shenanigan No. 5: Failing to Record or Improperly Reducing Liabilities

137

(16)

Shenanigan No. 6: Shifting Current Revenue to a Later Period

153

(10)

Shenanigan No. 7: Shifting Future Expenses to the Current Period as a Special Charge

163

(14)

PART THREE: Techniques for Detecting Shenanigans

177

(30)

Database Searching

179

(6)

Analyzing Financial Reports

185

(22)

PART FOUR: Problem Areas

207

(26)

Acquisition Accounting Tricks

209

(10)

Revenue Recognition

219

(14)

PART FIVE: Looking Back...Looking Forward

233

(32)

History of Financial Shenanigans

235

(10)

Leading the Battle to Combat Shenanigans

245

(14)

As Bad As It Gets

259

(6)

Appendix Tutorial: Understanding the Basics of Financial Reporting

265

(23)

Index

288

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

Summary

Author Biography

Table of Contents

Supplemental Materials