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1 Financial Statement Analysis: Key to Identifying Fraud Breakout Session # 803 Juanita M. Rendon, MBA, CPA April 7, 2009 11:00 AM – 12:30 PM.

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Presentation on theme: "1 Financial Statement Analysis: Key to Identifying Fraud Breakout Session # 803 Juanita M. Rendon, MBA, CPA April 7, 2009 11:00 AM – 12:30 PM."— Presentation transcript:

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2 1 Financial Statement Analysis: Key to Identifying Fraud Breakout Session # 803 Juanita M. Rendon, MBA, CPA April 7, :00 AM – 12:30 PM

3 2 Understand general fraud concepts. Understand basic financial statements and ratio analysis. Understand the usefulness of ratio analysis as a tool in identifying potential fraud. Learning Objectives

4 3 Fraud Common Thread in Definitions Types of Fraud Fraud Triangle/Fraud Diamond Incentives To Commit Financial Statement Fraud Financial Statement Fraud Issues Basic Financial Statements Standard Setting Components of Financial Statements Ratio Analysis Categories of Financial Ratios Ratio Analysis Usefulness as a Tool Overview

5 Fraudulent Activities Cost Billions of Dollars! Contracting Managers Need To Be aware Of Potential Fraud. WHY IS THIS IMPORTANT? 4

6 (ACFE, 2008) ACFE 2008 Report To The Nation On Occupational Fraud and Abuse Study was based on 959 cases of fraud investigations by CFEs between Jan & Feb

7 (ACFE, 2008) ACFE 2008 Report To The Nation On Occupational Fraud and Abuse 6

8 Fraud Definition Dictionary definition: noun –deceit; trickery; cheating –LAW: intentional deception to cause a person to give up property or some lawful right a person who deceives, is an impostor or a cheat 7

9 ACFE Fraud Definition Occupational fraud and abuse may be defined as: "The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources or assets." (Wells, Joseph T., 2008; ACFE, 2006) 8

10 DOD defines fraud as follows: –Fraud is any intentional deception taken for the purpose of inducing DOD action or reliance on that deception. Fraud can be perpetrated by DOD personnel—whether civilian or military—or by contractors and their employees. DOD Fraud Definition (GAO,2006, June 19, Contract Management: DOD Vulnerabilities to Contracting Fraud, Waste, and Abuse, ) 9

11 IRS Fraud Definition Fraud is deception by misrepresentation of material facts,… resulting in material damage to one who relies on it and has the right to rely on it… Tax fraud is often defined as an intentional wrongdoing on the part of a taxpayer, with the specific purpose of evading a tax known or believed to be owing. Tax fraud requires both: An underpayment; and A fraudulent intent. (Internal Revenue Service, Internal Revenue Manual ( )) 10

12 COMPUTER INTERNET FRAUD (Cyber Theft) TYPES OF FRAUD MORTGAGE FRAUD (Sub-prime Loans) HEALTHCARE FRAUD (Medicare Fraud) EMPLOYEE FRAUD (Payroll Fraud) FINANCIAL STATEMENT FRAUD (Enron, WorldCom) CONSUMER FRAUD (Identity Theft) TAX FRAUD (Federal Income Tax) GOVERNMENT PROCUREMENT FRAUD (Purchase Cards) 11

13 The Fraud Triangle Criminologist Donald R. Cressey ( ) –While researching his doctoral dissertation in the 1950s, developed a hypothesis to explain why people commit fraud. –Published “Other People’s Money: A Study in the Social Psychology of Embezzlers” Dr. Cressey interviewed 200 inmates at prisons in the Midwest Three key elements: –Incentive/Motivation/Pressure –Opportunity –Rationalization (Wells, Joseph T., 2008) 12

14 13

15 (Wolfe, David T.,& Hermanson, Dana R., 2004, December ) Capability Traits: Position/Function Authority Influence Brains Knowledge Coercion Skills Confidence/ego Effective Lying 14

16 Other Fraudulent Financial Statement Issues Fictitious Revenue/ Accounts Receivable Inventory/ Cost of Goods Sold Timing Or Classification Issues Disclosure/ Lack Of Transparency Understated Liabilities/Expenses Overstated Assets/Income Improper Asset Valuation 15

17 Most businesses prepare : 1.Income Statement 2.Balance Sheet 3.Statement of Cash Flows 4.Statement of Stockholders’ Equity 5.Statement of Retained Earnings Overview of Financial Statements In the U. S., financial statements are based on Generally Accepted Accounting Principles (GAAP). (Albright & Ingram, 2006) 16

18 The Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) oversee the publically traded companies. The Financial Accounting Standards Board (FASB) (American Institute of Certified Public Accountants -- AICPA) oversees the private companies. Standard Setting Organizations (Albright & Ingram, 2006) Overview of Financial Statements 17

19 The Governmental Accounting Standards Board (GASB) sets accounting standards for state & local governments The U. S. Government Accountability Office (GAO) oversees accounting in the federal government. Standard Setting Organizations (Albright & Ingram, 2006) The International Accounting Standards Board (IASB) is an independent, privately-funded board interested in global accounting standards ( International Financial Reporting Standards). 18

20 Sources of Accounting Regulations The Sarbanes-Oxley Act (SOX) was passed by Congress in This act affected the responsibilities of auditors, boards of directors, and corporate managers with respect to financial reporting. The primary purpose was to increase investor confidence. (Albright & Ingram, 2006) Overview of Financial Statements 19

21 Auditing standards include procedures used in conducting an audit to help auditors form an opinion about the fairness of the audited statements. (GAAS: Generally Accepted Auditing Standards). For the federal government, the Generally Accepted Government Auditing Standards (GAGAS) are used. The Auditors’ Report (Albright & Ingram, 2006) 20

22 The Income Statement (Statement of Earnings) reports revenues and expenses for an accounting period. Overview of Financial Statements (Albright & Ingram, 2006) 21

23 ABC Company, Inc. Income Statement For the Year Ended December 31, 2008 Sales revenue$700,500 Cost of goods sold (450,200) Gross profit250,300 Depreciation Expense (60,000) Selling, general, & administrative exp. (90,300) Operating income100,000 Interest expense (5,000) Pretax income95,000 Income taxes (40% tax rate) (38,000) Net income$ 57,000 22

24 A Balance Sheet (Statement of Financial Condition) identifies a company’s assets and claims to those assets by creditors and owners at a specific date. (A = L + SE) (a snapshot) A Balance Sheet (Statement of Financial Condition) identifies a company’s assets and claims to those assets by creditors and owners at a specific date. (A = L + SE) (a snapshot) Overview of Financial Statements 23

25 ABC Company, Inc. Balance Sheet At December 31, 2008 Assets Current assets: Cash$ 12,600 Accounts receivable9,600 Merchandise inventory22,000 Supplies800 Prepaid rent 1,000 Total Current Assets$ 46,000 Long-term (Fixed) Assets: Property and equipment, at cost300,000 Less Accumulated depreciation (60,000) Total Long-term (Fixed) Assets $240,000 Total Assets$286,000 ContinuedContinued 24

26 Liabilities and Stockholders’ Equity: Current Liabilities: Accounts payable$ 8,500 Unearned revenue3,800 Interest payable700 Notes payable, current portion 4,000 Total Current Liabilities $ 17,000 Long-term liabilities: Notes payable, long-term 80,000 Total Liabilities$ 97,000 Stockholders’ equity: Common stock150,000 Retained earnings 39,000 Total Stockholders’ Equity $189,000 Total Liabilities and Stockholders’ Equity$286,000 25

27 ABC Company, Inc. Balance Sheet At December 31, 2008 Assets: Total assets $286,000 Liabilities and Stockholders’ Equity Total Liabilities and Stockholders’ Equity $286,000 Must Equal 26

28 Assets = Liabilities Stock- holders’ Equity + The Financial Obligations or Debts of a Business The Basic Accounting Equation Economic Resources Owned by a Business Owners’ Claims on the Assets of a Business (Albright & Ingram, 2006) 27

29 The Statement of Cash Flows reports events that affected a company’s cash account during a fiscal period; has three sections: operating, investing, & financing. Overview of Financial Statements (Albright & Ingram, 2006) 28

30 The Statement of Cash Flows (Albright & Ingram, 2006) Investing activities involve the buying and selling of long-term assets. Financing activities involve transactions between a company and its owners or creditors. Operating activities involve the buying or producing and the sale & distribution of goods and services to customers related to cash. 29

31 The Statement of Cash Flows GAAP permits the statement to be presented in either of two formats: direct or indirect. GAAP requires a schedule to reconcile cash flows from operating activities with net income if the direct format is used. (Albright & Ingram, 2006) The differences between formats are in the operating section only. 99% of companies use the indirect method. 30

32 ABC Company, Inc. Statement of Cash Flows For the Year Ended December 31, 2008 Operating Activities Net income$ 57,000 Depreciation exp. (noncash)60,000 Increase in accounts receivable (CA)(20,000) Increase in merchandise inventory (CA)(32,000) Increase in supplies (CA)(1,200) Increase in prepaid rent (CA)(5,000) Increase in accounts payable (CL)6,600 Increase in unearned revenue (CL)3,000 Increase in interest payable (CL) 400 Net cash flow from operating activities $ 68,800 From the income statement Indirect 31

33 Carried forward $ 68,800 Investing Activities Payments for purchase of equipment(231,700) Receipts from sale of equipment 500 Net cash flow for investing activities (231,200) Financing Activities Receipts from sale of common stock150,000 Payment of dividends(20,000) Receipts from borrowing60,000 Repayment of debt (15,000) Net cash flow from financing activities 175,000 Net increase in cash12,600 Cash balance, December 31, Cash balance, December 31, 2008$ 12,600 32

34 Statement of Stockholders’ Equity CC RE Total Balance at Jan. 1, 2008$ 0 $ 2,000 $ 2,000 + Common Stock Issued 150, ,000 + Net Income 57,000 57,000 - Dividends ______ = Balance at Dec.31, 2008 $150,000 $39,000 $ 189,000 This statement links the income statement to the balance sheet. It describes how much Net Income was reinvested as part of RE. Statement of Stockholders’ Equity (Albright & Ingram, 2006) 33

35 ABC Company, Inc. Statement of Retained Earnings For the Year Ended December 31, 2008 Retained Earnings, Jan. 1, 2008 $ 2,000 Net income for ,000 Less: Dividends (Pmt. to Stkhldrs) (20,000) 37,000 Retained Earnings, Dec. 31, 2008 $39,000 This shows the amount of Net earnings (NI) retained by the company and the dividends distributed to shareholders. RE is part of the B/S. Statement of Retained Earnings (Albright & Ingram, 2006) 34

36 Title of Slide Income Statement: Revenues = Net Income or (Net Loss) Balance Sheet: Assets Liabilities Stockholders’ Equity: *Capital Stock *Retained Earnings A = L + SE Overview of Financial Statements 35

37 Vertical Analysis: involves measuring relationships between items for a single year. For example, % of sales on an income statement; % of total assets & % of total Liabilities & Stockholders’ Equity on a balance sheet Horizontal Analysis: involves calculating the Dollar change and the Percent change for each line item on the Income Statement or Balance Sheet from the previous year to the current year. Current year – Previous year/Previous year x 100 = % change Ratio Analysis: Various ratios Financial Statement Analysis Methods (Brigham & Houston, 2007) 36

38 Why are ratios useful? Ratios can standardize numbers and facilitate comparisons. Ratios can be used to highlight weaknesses and strengths. Ratio comparisons should be over a period of time and with competitors in the same industry –Trend analysis –Industry analysis (Brigham & Houston, 2007) 37

39 Liquidity (Solvency): Can the company meet its short-term obligations? Asset management (Operating Efficiency): Is the company using its assets to generate sales? Debt Management: Does the company have the right mix of debt and equity? Is the company highly leveraged? Profitability: Is the company consistently making a profit? Is the company managing its expenses? Market Value: Do investors like what they see? Five Major Categories Of Ratios (Brigham & Houston, 2007) 38

40 Five Major Categories Of Ratios SUMMARY OF RATIOS LiquidityAsset ManagementDebt ManagementProfitabilityMarket Value Current Ratio (Current Assets/Current Liabilities) Accounts Receivable Turnover (Net Sales/Net Accounts Receivable) Debt/Equity (Debt Ratio) (Total Liabilities/Total Stockholders' Equity Gross Profit Margin (Gross Profit/Sales) Earnings Per Share (EPS) (Net Earnings/Average Shares Outstanding) Quick Ratio (CA-Inventory/CL) Inventory Turnover (Sales/Inventories) Debt/Assets (Total Liabilities/Total Assets) Operating Profit Margin (Operating Profit/Sales) Price/ Earnings (PE) (Market Price of Common Stock/EPS) Cash Flow Liquidity Ratio Cash Flow From Operating Activities/Total Assets) Fixed Asset Turnover (Sales/Fixed Assets) Times Interest Earned (EBIT/Interest Expense) Net Profit Margin (Net Profit/Sales) Dividend Payout (Cash Dividends Per Share/EPS) Days Sales Outstanding (DSO) or Average Collection Period (AR/Average Sales Per Day) Total Asset Turnover (Sales/Total Assets) Return on Assets (ROA) (Net Income/Total Assets) Dividend Yield (Cash Dividends Per Share/Market Price of Common Stock Per Share) Return on Equity (ROE) (Net Income/Total Stockholders' Equity) Prepared by Juanita M. Rendon, CPA 39

41 Cash Accts. Receivable Inventories Total Current Assets Gross L-T Assets Less: Acc. Depreciation Net L-T Assets Total Assets , ,000 1,300,000 1,938,000 1,300, , ,900 2,838, , ,800 2,148,800 3,150,400 1,800, , ,600 4,051,000 TYL, Inc.: Balance Sheet (Brigham & Houston, 2007) 40

42 Liabilities and Equity: Accts. payable Notes payable, current Unearned Revenue Total Current Liab. Long-term debt Total Liabilities: Stockholders’ Equity: Common stock Retained earnings Total Stkhldrs Equity Total Liab. & Equity , , ,000 1,620, ,000 2,420, ,500 30, ,000 2,838, , , ,000 1,130, ,000 1,630,700 2,084, ,726 2,420,300 4,051,000 (Brigham & Houston, 2007) 41

43 Sales COGS Gross Profit (GM) Other expenses EBITDA Depr. & Amort. EBIT Interest Exp. Earnings Before Taxes Taxes (40% tax rate) Net income ,500,000 (3,500,000) 1,000,000 ( 500,900) 499,100 ( 100,900) 398,200 ( 130,000) 268,200 (107,280) 160, ,000,600 (5,800,990) 1,199,610 (500,000) 699,610 (110,900) 588,710 ( 80,000) 508,710 ( 203,484) 305,226 (Brigham & Houston, 2007) TYL, Inc.: TYL, Inc.: Income Statement 42

44 No. of shares EPS Stock price ,000 $2.035 $ ,000 $1.609 $8.85 (Brigham & Houston, 2007) TYL, Inc.: TYL, Inc.: Other data 43

45 TYL Inc.’s forecasted current ratio and quick ratio for 2008: Current ratio = Current assets / Current liabilities = $3,150,400 / $1,130,700 = 2.79x Quick ratio = (CA – Inventories) / CL = ($3,150,400 – $2,148,800) / $1,130,700 = 1,001,600/1,130,700 = 0.89x Financial Analysis: Liquidity Ratios (Brigham & Houston, 2007; Fraser & Ormiston, 2010) 44

46 Comments on liquidity ratios Industry Current Ratio2.79x1.20x2.32x3.98x Quick Ratio0.89x0.39x0.86x1.12x Measure short-run solvency—the ability of a co. to meet its short-term debt requirements as they come due. For 2008, Co. had $2.79 of CA for $1 of CL; For 2008, Co. has $.89 of cash & near cash assets for every $1 of CL. Below industry average; Liquidity position is weak. The higher the liquidity ratios, the better. Financial Analysis: Liquidity Ratios (Brigham & Houston, 2007; Fraser & Ormiston, 2010)

47 The inventory turnover vs. the industry average: (2008) Inv. turnover = Sales / Inventories = $7,000,600/$2,148,800 = 3.26x = 3.3x Financial Analysis: Asset Management Ratios (Brigham & Houston, 2007)

48 What is the inventory turnover vs. the industry average? Industry Inventory Turnover 3.3x3.5x4.9x6.2x Financial Analysis: Asset Management Ratios (Brigham & Houston, 2007) Indicates the number of times a company sells its average inventory level during the year. Inventory turnover is below industry average. The company might have old inventory, or its control might be poor. A higher inventory turnover is usually better.

49 (Days Sales Outstanding) DSO is the average number of days after making a sale before receiving cash. (2008) DSO= Accounts Receivable / Avg sales per day = Accounts Receivable / (Annual sales/365) = $900,800 / ($7,000,600/365) = $900,800/19, = 47.0 days Financial Analysis: Asset Management Ratios (Brigham & Houston, 2007) 48

50 Analysis of Days Sales Outstanding Industry DSO Measures the number of days between the sale date and the cash collection date. The company is below industry average; it collects on sales on account (A/R) too slowly It appears to have a poor credit policy. A lower DSO is usually better. Financial Analysis: Asset Management Ratios (Brigham & Houston, 2007) sales current year Sales Growth Index =_____________ sales prior year

51 Fixed assets (FA) and total assets (TA) turnover ratios vs. the industry average (2008) FA turnover= Sales / Net fixed assets = $7,000,600/$900,600 = 7.8x TA turnover= Sales / Total assets = $7,000,600/$4,051,000 = 1.7x Financial Analysis: Asset Management Ratios (Brigham & Houston, 2007) 50

52 Evaluating the Fixed (Long-term) Asset Turnover and Total Asset Turnover Ratios: Industry FA TO7.8x5.0x11.0x8.1x TA TO1.7x1.6x2.5x3.7x Measure efficiency; Show how many sales $ a co. can generate from each $1 of its assets. In 2008, FA turnover is below the industry avg. TA turnover is below the industry average. May be c aused by excessive currents assets (A/R and Inventory). Financial Analysis: Asset Management Ratios (Brigham & Houston, 2007)

53 The debt ratio (D/A) and times-interest- earned (TIE) ratios. (2008) Debt ratio= Total debt / Total assets = ($1,130,700 + $500,000/$4,051,000 = 1,630,700/4,051,000 = 40.3% TIE= EBIT / Interest expense = $588,710/$80,000 = 7.4x Financial Analysis: Debt Management Ratios (Brigham & Houston, 2007) 52

54 How do the debt management ratios compare with industry? Industry D/A40.3%85.3%54.7%30.2% TIE7.4x3.1x4.2x9.1x Debt to Asset Ratio (debt ratio) shows the % of each $1 of assets that is financed with debt. Times Interest Earned (TIE) ratio measures a company’s ability to pay the interest on its debt. For 2008, the co. has available $7.40 of earnings before interest and taxes for each $1 of interest it must pay to its creditors. Financial Analysis: Debt Management Ratios (Brigham & Houston, 2007)

55 How do the debt management ratios compare with industry? Industry D/A40.3%85.3%54.7%30.2% TIE7.4x3.1x4.2x9.1x D/A and TIE for 2008 are worse than the industry average, A lower debt ratio (D/A) is usually better. A higher TIE is better. Financial Analysis: Debt Management Ratios (Brigham & Houston, 2007)

56 Profitability ratios: Net Profit margin (NPM) (2008) Net Profit margin= Net income / Sales = $305,226/$7,000,600 = 4.4% Financial Analysis: Profitability Ratios (Brigham & Houston, 2007) 55

57 Analyzing profitability with the net profit margin Industry NPM4.4%3.6%2.5%3.8% NPM represents the company’s ability to translate sales dollars into profits; a higher NPM is better. Net Profit margin was below the industry average in 2006 and 2007, but is exceeded the industry average in Financial Analysis: Profitability Ratios (Brigham & Houston, 2007)

58 Profitability ratios: Return on assets and Return on equity (2008) ROA= Net income / Total assets = $305,226/$4,501,000 = 7.5% ROE= Net income / Total Stkhlders equity = $305,226 / $2,420,300 = 12.6% Financial Analysis: Profitability Ratios (Brigham & Houston, 2007) 57

59 Analyzing profitability with the return on assets & return on equity Industry ROA7.5%5.7%6.3%9.3% ROE12.6%38.5%13.2%18.4% ROA shows how much profit a co. is able to earn from each $1 of its assets. For 2008, the co. is earning 7.5 cents for each $1 of assets. ROE shows how many cents are earned on each $1 of stockholders’ investment. For 2008, the co. is earning 12.6 cents for each $1 of its owners’ investment (equity). Both ratios are below the industry average. Financial Analysis: Profitability Ratios (Brigham & Houston, 2007)

60 Analysis of Sales Growth Index Manipulator & Non- Manipulator Means SGI /1.134 Financial Analysis: Asset Management Ratios (Harrington, 2005; Beneish, 1999) Sales Current Year Sales Growth Index =_____________ Sales Prior Year 7,000, Sales Growth Index =___________ = ,500,000

61 Analysis of Gross Margin Index Manipulator & Non- Manipulator Means GMI /1.014 Financial Analysis: Asset Management Ratios (Harrington, 2005; Beneish, 1999) Gross Margin prior year/sales prior year Gross Margin Index =_____________________________ Gross Margin current year/sales current year (1,000,000/4,500,000) 2008 Gross Margin Index =____________________ (1,199,610/7,000,600) Gross Margin Index =____________________ =

62 Analysis of Days’ Sales in Receivables Index Manipulator &Non- Manipulator Means DSRI /1.031 Financial Analysis: Asset Management Ratios (Harrington, 2005; Beneish, 1999) Receivables Current Year/ Sales Current Year Days' Sales in Receivables Index =________________________________ Receivables Prior Year/Sales Prior Year 900,800/7,000, Days' Sales in Receivables Index =_________________ 630,000/4,500, Days' Sales in Receivables Index =________ =

63 Analysis of Asset Quality Index Manipulator &Non- Manipulator Means AQI /1.039 Financial Analysis: Asset Management Ratios (Harrington, 2005; Beneish, 1999) Asset Quality Index = (1 – [(CA + Net FA)/Total Assets] Current Year) (1- [(CA + Net FA)/Total Assets] Prior Year) Asset Quality Index = (1 – [(3,150, ,600)/4,051,000] (1-[(1,938, ,900/2,838,900] Asset Quality Index = (1 – [4,051,000/4,051,000] = (1-[2,838,900/2,838,900]

64 63 (Wells, August 2001; Beneish, 1999) Example of Financial Statement Fraud

65 64 (Wells, August 2001; Beneish, 1999)

66 65 (Wells, August 2001; Beneish, 1999) Non-manipulators’ mean: Manipulators’ mean: and above Sales Growth Index = Current Period Sales/Prior Period Sales

67 66 (Wells, August 2001; Beneish, 1999) Non-manipulators’ mean: Manipulators’ mean: and above Asset Quality Index = (1 – CA + Net FA/Total Assets Current Year) (1-CA + Net FA/Total Assets Prior Year)

68 Usefulness of Financial Ratio Analysis: Quickly evaluate a company’s financial position & profitability. Used for trend analysis within a company over a period of years. Can compare the financial strength of different companies. (Williams, Haka, Bettner, & Carcello, 2008) 67

69 Qualitative Factors in Financial Statement Analysis Regulatory Environment Competition Revenues Tied To One Key Customer, Product, Or Supplier Legal Environment Future Prospects Qualitative Factors (Brigham & Houston, 2007) 68

70 Limitations of Financial Statement Ratio Analysis Analysts should look beyond the ratios. Economic Factors Industry Trends; Seasonal Different Accounting Practices Technological Changes Inappropriate Industry Comparisons Limitations of FS Ratio Analysis (Albright & Ingram, 2006) 69

71 Limitations of Financial Statements Analysts should research company & industry. Use of Estimates Delay in providing information Omission of resources & costs Use of Historical Costs Omission of Transactions Limitations of FS (Albright & Ingram, 2006) 70

72 Efforts to Prevent & Detect Fraud ACFE Educational Anti-fraud Resources AICPA Antifraud & Corporate Responsibility Center Sarbanes Oxley Act of

73 Free Information Sources SEC Edgar Database Yahoo Finance Company Websites 72

74 73 Fraud Common Thread in Definitions Types of Fraud Fraud Triangle/Fraud Diamond Incentives To Commit Financial Statement Fraud Financial Statement Fraud Issues Basic Financial Statements Standard Setting Components of Financial Statements Ratio Analysis Categories of Financial Ratios Ratio Analysis Usefulness as a Tool Summary

75 THANK YOU FOR YOUR ATTENTION! CONTACT 74

76 75 QUESTIONS?

77 References Albright, T. L., & Ingram, R. W. (2006). Financial accounting: A bridge to decision-making. 6 th Edition. Mason, OH: Thomson South-Western. ACFE 2008 Report to the Nation on Occupational Fraud and Abuse. (2008) Beneish, M. D. (1999, September/October). The detection of earnings manipulation. Financial Analyst Journal. 55(5), Brigham, E. F., & Houston, J. F. (2007). Fundamentals of financial management. 5 th Edition. Mason, OH: Thomson South-Western. Fraser L. M. & Ormiston, A. (2010). Understanding Financial Statements, 9 th Edition. New York, NY: Prentice Hall Fraud definition. (n.d.) Retrieved from 76

78 References (continued) Fraud Definition. Internal Revenue Service. Internal Revenue Manual § ( ) Retrieved from GAO. (2006, June 19).Contract Management: DOD Vulnerabilities to Contracting Fraud, Waste, and Abuse. GAO Code /GAO R. Harrington, C. (2005, March/April). Formulas for detection: Analysis ratios for detecting financial statement fraud. Fraud Magazine. Association of Certified Fraud Examiners. Retreived January 15, 2009, from Rosplock, M. F. (2001, June). Advanced analytical techniques for performing forensic financial analysis. Business Credit. 103(6),

79 References (continued) Well, Joseph T. (2008). Principles of Fraud Examination. 2 nd Edition. Hobken, NJ: John Wiley & Sons, Inc. Wells, J. T. (2001, August). Irrational Ratios. Journal of Accountancy. 192(2), Williams, J. R., Haka, S. F., Bettner, M. S., & Carcello, J. V. (2008). Financial & managerial accounting: The basis for business decisions. 14 th Edition. New York, NY: McGraw-Hill/Irwin. Wolf D. T. & Hermanson, D. R. (2004, December). The fraud diamond: Considering the four elements of fraud. The CPA Journal


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