1. FORENSIC ACCOUNTING - BA124 - 2010Slide 19-1 Today’s Topics n Cash Flow Shenanigans n Metrics Shenanigans

2. FORENSIC ACCOUNTING - BA124 - 2010Slide 19-2 Cash Flow Shenanigans n CFS #1: Shifting Financing inflows to Operating inflows n CFS #2: Shifting Operating outflows to Investing outflows n CFS #3: “Inflating” Operating inflows through normal but infrequent ops n CFS #4: “Inflating” Operating inflows through normal operations

3. FORENSIC ACCOUNTING - BA124 - 2010Slide 19-3 CFS #1 n Bank borrowings as CFO n Sale of receivables as CFO n Sham sale of receivables as CFO

4. FORENSIC ACCOUNTING - BA124 - 2010Slide 19-4 CFS #2 n Boomerang transactions n Capitalization of operating expenses n Treating inventory purchases as investing activities

5. FORENSIC ACCOUNTING - BA124 - 2010Slide 19-5 CFS #3 n Inheriting cash flows via acquisition n Acquisition of customers or products n Structuring a divestiture to benefit operating cash flows

6. FORENSIC ACCOUNTING - BA124 - 2010Slide 19-6 CFS #4 n Paying vendors more slowly n Collecting from customers more quickly n Purchasing less inventory n Limited disclosure of one-time benefits

7. FORENSIC ACCOUNTING - BA124 - 2010Slide 19-7 Metrics Shenanigans n MS #1: Misleading metrics that overstate performance n MS #2: Distorting metrics that avoid bad news

8. FORENSIC ACCOUNTING - BA124 - 2010Slide 19-8 MS #1 n Proforma revenue metrics n Proforma earnings metrics n Proforma cash flow metrics

9. FORENSIC ACCOUNTING - BA124 - 2010Slide 19-9 MS #2 n Distorting A/R metrics n Distorting inventory metrics n Distorting financial asset metrics n Distorting debt metrics