Shenanigans: Secret or dishonest activity or maneuvering
Recently I was reading Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports. The book by Howard Schilit and Jeremy Perler sheds the light on various Shenanigans (methods/techniques) which management uses to cook the books to make businesses look better than they actually are.
It’s a good read for both investors and auditors as the authors have used real examples like that of Enron, WorldCom, Tyco, etc. and other lesser known corporate scams detailing how they were perpetuated before they saw the light of day and how one could have spotted the false accounting in these cases. The Shenanigans given are:
7 Earnings Manipulation Shenanigans
1. Recording revenue too soon
2. Recording bogus revenue
3. Boosting income using one time or unsustainable activities
4. Shifting current expenses to later period
5. Employing other techniques to hide expenses or losses
6. Shifting current income to later period
7. Shifting future expenses to an earlier period
4 Cash Flow Manipulations Shenanigans
1. Shifting financing cash flow to operating section
2. Shifting normal operating cash outflow to the investing section
3. Inflating operating cash flow using acquisitions or disposals
4. Boosting operating cash flow using unsustainable activities
2 Key Metrics manipulation Shenanigans
1. Showcasing misleading metrics that overstate performance
2. Distorting Balance Sheet metrics to avoid deterioration
Edit 1: Link to Financial Shenanigans: Earnings Manipulation (Part 2)
Audit Monk 