Creative Accounting

In addition to your class tuition and study materials, you will receive the following:


Case Study

• Course case study

Exercises

• Determining when risk and rewards have been transferred:
• - Consignment stock
• - Sale and repurchase agreements

Other Extras

• Certificate of attendance

Level: Intermediate


Synopsis:
So how do those crafty accountants and financial directors make their financial statements look better than they really are? This course provides a guide through the maze of potential confusion and identifies the ploys that ill-managed companies sometimes adopt. Don't be one of those analysts or fund managers that are hoodwinked into believing a set of fraudulently prepared accounts!


At the end of the course participants will be able to: Understand the ways in which real-life case studies have manipulated their accounts - e.g. Enron,WorldCom, Parmalat . Know how to detect accounting manipulations and fraud in financial statements . Know how to identify the misuse of off-balance sheet items and the understatement of corporate liabilities . Know how to identify the methods by which expenses can be understated in order to increase profits . Know how to identify the ploys used to overstate revenue .


Prerequisites:
None


Suitable For:
Anyone involved in the interpretation and/or analysis of financial statements including fund managers, analysts and sales.


Introduction

• Financial reporting - does it meet shareholder needs?
• When are financial scams most likely to occur?
• The impact of international convergence

The four key issues of analysis

• Profitability
• Operational efficiency
• Short-term solvency and liquidation
• Long-term solvency and capital structure/leverage

Revenue recognition

• Front-loading revenue to improve key indicators
• Fictitious revenue and the link to corporate governance
• Wash-trades and selling within a group structure
• Creating revenue spikes
• Delaying revenue recognition
• Using supplier rebates to increase the top line
• Revenue vs. capital gains

Revenue recognition: problem areas

• Accounting for long-term contracts: and the conflict between prudence and accruals
• Leasing assets - the conflict between legality and commercial form: Operating lease vs. Capital lease; Lessee vs Lessor
• Sales and leasebacks

Expense recognition

• Misallocation of expenses
• Income statement vs. capitalisation method
• Amortisation policies
• Impairment reviews - trying to spot legitimate indicators
• 'Big bath' provisioning

Recognising liabilities

• Criteria for liability recognition
• Deferred income liabilities
• Off-balance sheet liability scams and SPVs
• Provision accounting

Other areas to watch out for

• Ways in which group financial statements can provide misleading impressions: re-allocation of acquisition price; recording of pre-acquisition revenue
• Fraud vs. creative accounting vs. window dressing
• Intangible assets - when does fiction become fantasy?

Current issues

• Determining fair values
• Environmental provisioning
• Simplifying financial instrument rules

Techniques you can adopt to spot financial scams

• Common size of financial statements
• Analysis of cash flow statements
• Inspection of footnotes and accounting policies
• How to spot the warning signs