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Today’s Topics

This presentation delves into various techniques of manipulating cash flow statements (CFS) and metrics in forensic accounting. It covers practices like shifting financing inflows to operating inflows, inflating operating inflows, and misleading metrics that overstate performance. Examples include bank borrowings recognized as cash flow from operations and capitalizing operating expenses. These tactics can mislead stakeholders about a company's financial health, making it crucial for accountants and investors to understand these shenanigans to ensure transparency and credibility in financial reporting.

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Today’s Topics

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  1. Today’s Topics • Cash Flow Shenanigans • Metrics Shenanigans FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-1

  2. Cash Flow Shenanigans • CFS #1: Shifting Financing inflows to Operating inflows • CFS #2: Shifting Operating outflows to Investing outflows • CFS #3: “Inflating” Operating inflows through normal but infrequent ops • CFS #4: “Inflating” Operating inflows through normal operations FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-2

  3. CFS #1 • Bank borrowings as CFO • Sale of receivables as CFO • Sham sale of receivables as CFO FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-3

  4. CFS #2 • Boomerang transactions • Capitalization of operating expenses • Treating inventory purchases as investing activities FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-4

  5. CFS #3 • Inheriting cash flows via acquisition • Acquisition of customers or products • Structuring a divestiture to benefit operating cash flows FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-5

  6. CFS #4 • Paying vendors more slowly • Collecting from customers more quickly • Purchasing less inventory • Limited disclosure of one-time benefits FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-6

  7. Metrics Shenanigans • MS #1: Misleading metrics that overstate performance • MS #2: Distorting metrics that avoid bad news FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-7

  8. MS #1 • Proforma revenue metrics • Proforma earnings metrics • Proforma cash flow metrics FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-8

  9. MS #2 • Distorting A/R metrics • Distorting inventory metrics • Distorting financial asset metrics • Distorting debt metrics FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-9

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