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FORENSIC ACCOUNTING - BA124 - 2011Slide 19-1 Today’s Topics n Earnings Manipulation Shenanigans #6 and #7 n Cash Flow Shenanigans n Metrics Shenanigans.

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Presentation on theme: "FORENSIC ACCOUNTING - BA124 - 2011Slide 19-1 Today’s Topics n Earnings Manipulation Shenanigans #6 and #7 n Cash Flow Shenanigans n Metrics Shenanigans."— Presentation transcript:

1 FORENSIC ACCOUNTING - BA124 - 2011Slide 19-1 Today’s Topics n Earnings Manipulation Shenanigans #6 and #7 n Cash Flow Shenanigans n Metrics Shenanigans

2 FORENSIC ACCOUNTING - BA124 - 2011Slide 19-2 EMS #6 n “The Sun Will Come Out Tomorrow” n Pre-acquisition revenue holdback n Adjusting cookie jar reserves n Adjusting acquisition reserves 2 Executive Education, Inc., © William F. O'Brien, 2011

3 FORENSIC ACCOUNTING - BA124 - 2011Slide 19-3 EMS #7 n Inflating special charges n Acceleration of discretionary reserves 3 Executive Education, Inc., © William F. O'Brien, 2011

4 FORENSIC ACCOUNTING - BA124 - 2011Slide 19-4 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

5 FORENSIC ACCOUNTING - BA124 - 2011Slide 19-5 CFS #1 n Bank borrowings as CFO n Sale of receivables as CFO n Sham sale of receivables as CFO

6 FORENSIC ACCOUNTING - BA124 - 2011Slide 19-6 CFS #2 n Boomerang transactions n Capitalization of operating expenses n Treating inventory purchases as investing activities

7 FORENSIC ACCOUNTING - BA124 - 2011Slide 19-7 CFS #3 n Inheriting cash flows via acquisition n Acquisition of customers or products n Structuring a divestiture to benefit operating cash flows

8 FORENSIC ACCOUNTING - BA124 - 2011Slide 19-8 CFS #4 n Paying vendors more slowly n Collecting from customers more quickly n Purchasing less inventory n Limited disclosure of one-time benefits

9 FORENSIC ACCOUNTING - BA124 - 2011Slide 19-9 Metrics Shenanigans n MS #1: Misleading metrics that overstate performance n MS #2: Distorting metrics that avoid bad news

10 FORENSIC ACCOUNTING - BA124 - 2011Slide 19-10 MS #1 n Proforma revenue metrics n Proforma earnings metrics n Proforma cash flow metrics

11 FORENSIC ACCOUNTING - BA124 - 2011Slide 19-11 MS #2 n Distorting A/R metrics n Distorting inventory metrics n Distorting financial asset metrics n Distorting debt metrics

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