Creative Accounting, Fraud and International Accounting Scandals

by Michael Jones

Business scandals are always with us from the South Sea Bubble to Enron and Parmalat.  As accounting forms a central element of any business success or failure, the role of accounting is crucial in understanding business scandals. This book aims to explore the role of accounting, particularly creative accounting and fraud, in business scandals. The book is divided into three parts. In Part A the background and context of creative accounting and fraud is explored. Part  B looks at a series of international accounting scandals and Part  C draws some themes and implications from the country studies.

Genres: Business, Finance, Accounting

576 pages, Hardcover

First published October 15, 2010

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Reviews

[Henry · Rating 5 out of 5]

- Cost of Goods Sold formula is COGS = Beginning Inventory + Purchases - Ending Inventory. Thus a company can massage their revenue by increasing Ending Inventory (thus making COGS lower, rendering the expense lower)

- 2 ways inventories could be changed: 1) manipulate the quantity of the inventory 2) manipulate the valuation of the inventory

- (However, the drawback of the above profit management is that the company would seem like it’s having issue moving inventories. Given the balancing nature of accounting ledger, something has to give when creativity accounting comes to play)

- (Always ignore a company’s asset balance sheet. For one, companies often use acquired price for real estate assets and the asset itself might now be valued much higher than the acquired price. For the other, when companies use mark-to-market to value assets, the wiggle room for it is so wide that it’s very likely that the company’s valuation differs from fair trade valuation - the company will always (tend to) find a way to make itself look better)

- Company can always device multiple ways to get loan money without recording it on their balance sheet. One such scheme is use SPEs but have the asset backed by the company’s stock (thus, when the margin call occurs, the company then have to issue evermore stocks). If a company truly wants to deceive its investors, there are very limited amount of things an investor can do to detect it. It’s important to read past annual reports to see the moral character of the company management

- In terms of creative cash flow accounting, companies typically miscategorize non-reoccurring activity as reoccurring (recording things that shouldn’t be under operating activities as such), in reverse, in terms of outflows, companies would categorize reoccurring outflow as non-reoccurring (recording things that should be under operating cash outflow under investing/financing book)

- “… companies with negative results focus on the environment, target markets and emotive words rather than on company action and performance indicators”

- Avoid companies with highly complicated structure

[Jenni]

Använde som referens när jag skrev mitt examensarbete. Var dock inte till så stor hjälp föutom avsnittet där man behandlade svenska incidenter vad gäller kreativ redovisning.