Beruflich Dokumente
Kultur Dokumente
Introduction
Financial statements : necessary sources of information about companies Balance sheet, P&L Statement, Cash Flow etc Users: Company Management, Investors and Creditors government and Revenue Service Portrays companys status Forensic Accounting
Sales Manipulation Expense Manipulation Depreciation Manipulation Asset value Manipulation Mergers & Acquisition Manipulation
Sales Manipulation
Premature revenues Fictitious Revenues
Fake Invoices Bogus Products Recording revenues when buyers payment remains uncertain Buyer lacks Ability to pay Seller provided Financing Unsustainable activities Using onetime events to boost revenues
Expense Manipulation
Net Profit(Loss)=Revenues-Expenses Two Step Process for recording expenses Occurs at the time of expenditure : Capitalization 2. Happens when the benefit is received : Expensed
1.
Expense Manipulation(Contd..)
The different techniques to shift current expenses to later period:
1. 2. 3. 4.
Improperly capitalizing normal operating expense Amortizing costs too slowly Failing to write down assets with impaired value Understating Bad Debts Expense
Manipulation of Depreciation
Benefit of Depreciation: TAX EXEMPTION
Case I Higher depreciation Profit before depreciation Depreciation Taxable profit Tax (35%) Profit after tax (PAT) Cash flow after tax (PAT+Depn) 120 20 100 35 65 85 Case II Lower depreciation 120 10 110 38.5 71.5 81.5
Revaluing assets
Inventory Manipulation
Value of goods that have been manufactured / produced but
not sold. Three Approaches: 1. Overstating Physical Counts 2. Increasing Reported Valuation
3.
single unit.
Ways of manipulation
Boosting Cash Flow
The company pays cash for the acquisition 2) The company offers stock of Big Industries
1)
CONCLUSION
Depreciation Manipulation Mergers & Acquisition Manipulation Asset valueManipulation Expense Manipulation Sales Manipulation INFORMATION??!!
ENRON
WHAT DID THEY DO? 1. 2. 3. Once the seventh largest company in America Used accounting method known as "mark to market. Hedged investments into The Raptors.
WHAT DID THEY PAY? 1. 2. 3. Quarter loss of $618 million Stock fell from $86 to 30 cents Skilling, CFO, was sentenced to 24 years in prison.
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