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

Financial Shenanigans brings you completelyup to date on accounting chicanery in the globalmarkets, shining a light on the most shockingfrauds and financial reporting miscreants.This insightful, detailed guide written by recognizedexperts on the subject provides theknowledge and tools you need to spot even themost subtle signs of financial shenanigans.

Introduction:

While we regularly refer to investors in addressing readers throughout this book, we believe that many other parties will also benefit from a rigorous lesson in how to study financial reports to find mis-leading reporting practices. For example, any party with an economic interest (e.g., commercial bankers, bondholders, insurance underwriters, and other credit providers) needs accurate financial reports that portray the underlying economic reality in order to make informed decisions about an organization. In addition, independent auditors must understand the accounting tricks used by management in order to provide a reasonable opinion on the fairness of financial reports. Boards of directors cannot serve as effective fiduciaries for investors without carefully searching for signs of financial shenanigans. Government regulators must understand accounting gimmickry in order to properly enforce their rules. Influential credit rating organizations will fail to protect bondholders and others if their evaluation of an issuer’s financial reports lacks rigor. And corporate executives themselves, who need to monitor both their own performance and that of the competition, would benefit from the lessons in this book.

While most companies report their results honestly to investors, a significant number use accounting or financial reporting tricks to hide the truth. Since they are likely to be unaware of management’s integrity level, smart investors would do well to maintain a healthy skepticism and perform rigorous due diligence with regard to financial reports. Additionally, financial shenanigans occur in every industry and know no geographic borders. Thus, investors following companies headquartered in China, for example, will benefit as much as those interested in companies based in the United States, Brazil, or any other country. Our universal message is that investors should assume that the urge to exaggerate the positive and hide the negative will never disappear. And where temptation exists, shenanigans often follow.