Financial Shenanigans: How to Detect Accounting Gimmicks and Fraud in Financial Reports
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- Create Date：2021-06-19 09:55:59
- Update Date：2025-09-06
- Status：finish
- Author：Howard Schilit
- ISBN：126011726X
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Summary
The bestselling classic from the "Sherlock Holmes of Accounting"--updated to reflect the key case studies and most important lessons from the past quarter century。
This fourth edition of the classic guide shines a light on the most shocking frauds and financial reporting offenders of the last twenty-five years， and gives investors the tools they need to detect:
-Corporate cultures that incentivize dishonest practices-The latest tricks companies use to exaggerate revenue and earnings-Techniques devised by management to manipulate cash flow as easily as earnings-Companies that use misleading metrics to fool investors about their financial performance-How companies use acquisitions to hide deterioration in their underlying business
This new edition focuses on the key case studies and most important lessons from the past quarter century， and brings you up to date on accounting chicanery in the global markets。 Howard Schilit and his team of renowned forensic accounting experts expose financial reporting miscreants and unveil the latest methods companies use to mislead investors。 You'll learn everything you need to know to unearth deceptive reporting and avoid costly mistakes。
Reviews
Si Hong
，
Started off interesting， but got a bit too technical for my liking near to the end as I dont find it very relevant to my investment journey。
Ploypailin Lekwiwat
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A very structure way of book to show and display the shenanigans of the company would employ。 Easy-understanding example combined with the framework。 Wonderful！
Abir Kar
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“I can’t afford the operation， but would you accept a small payment to touch up the x-rays？"—Warren BuffetWarren Buffett generously uses his annual letter to shareholders as a vehicle to educate all interested parties about the art of investing。 In one such letter he gave a particularly poignant lesson about companies that use financial manipulation to hide unpleasant truths from investors。 This letter described a conversation between a seriously ill patient and his doctor。 After being informed “I can’t afford the operation， but would you accept a small payment to touch up the x-rays？"—Warren BuffetWarren Buffett generously uses his annual letter to shareholders as a vehicle to educate all interested parties about the art of investing。 In one such letter he gave a particularly poignant lesson about companies that use financial manipulation to hide unpleasant truths from investors。 This letter described a conversation between a seriously ill patient and his doctor。 After being informed of his deteriorating health the patient asked the doctor to touch up his X-rays。 Howard Schilit's book focusses on sick companies which instead of accepting the truth about their failing business and communicating it to the shareholders decided to employ one sinister method after another to keep up the appearance of health。 These accounting manoeuvres however end up harming the company in the long run - just like it would end up killing the sick patient。 Investors however can abandon ship before it sinks if they pay attention to certain tell tale signs which are hidden in plain sight。 The book is divided into several sections which focus on various kinds of manipulative practices which companies partake in - Earnings manipulation， Cash Flow Manipulation， Key Metrics manipulation and Acquisition Accounting Manipulation。 The book is replete with examples which adds to the ease of reading。 The book does not read like a text book at all instead it reads more like a detective novel which only goes to show that financial writing does not have to be dry by nature。 I would recommend this book to anyone who does not want to rely on analysts and market pundits which as it turns out you should not in the first place。 。。。more
Alexander Ruchti
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A not dry at all book on accounting and its missuses。 Highly recommended to anybody even remotely interested in investing。
Wat
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By far， one of the best books I have ever read about investments。Never thought of the amount of tricks companies could do to deceive us。You are going to learn a lot from this book。
Zhou Fang
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Great book on the technical ins and outs of accounting tricks， complete with many examples and step-by-step explanations of the specific methods used by corporate executives to dress up their operating results。 This book requires some basic familiarity with accounting and a general interest in the subject， but it really contains many fascinating examples of accounting tricks big and small over the years， from well-known ones during the dotcom bubble like Enron & Worldcom to modern day examples l Great book on the technical ins and outs of accounting tricks， complete with many examples and step-by-step explanations of the specific methods used by corporate executives to dress up their operating results。 This book requires some basic familiarity with accounting and a general interest in the subject， but it really contains many fascinating examples of accounting tricks big and small over the years， from well-known ones during the dotcom bubble like Enron & Worldcom to modern day examples like Valeant and Hertz。 Many of the tricks described in the book can be identified with a focus on reconciling to free cash flow （CFO-CFI）， rather than management's reported earnings。 The most helpful sections were the chapters which described cash flow shenanigans， and ways that management teams can boost CFFO by tricks such as （1） shifting receivables to financing section by converting A/R to notes receivable （2） sale of receivables to cover up increases in DSO （3） "sale" of receivables that have recourse to the company if the customers don't pay （4） boosting of CFFO through acquisitions by shifting all the expenses into CFI， and many more。 Taking the time to read the book in detail and really understand what the authors have to say will strengthen both your understanding of accounting and corporate executive behavior。 Great book for any practitioner in the investing industry。 。。。more
Iami Menotu
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Detailed guide of accounting manipulations in US companies。
Ben Casley
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This was an entertaining and accessible book that should be a required read for anyone looking to invest in listed equities or who is looking to do balance sheet analysis。The book aims to show different ways companies can account for different transactions to help you better understand their financial reports and what they are trying to tell investors。 It also highlights red flags， or things that should be considered aggressive or looked at more closely。 Companies are able to manipulated their r This was an entertaining and accessible book that should be a required read for anyone looking to invest in listed equities or who is looking to do balance sheet analysis。The book aims to show different ways companies can account for different transactions to help you better understand their financial reports and what they are trying to tell investors。 It also highlights red flags， or things that should be considered aggressive or looked at more closely。 Companies are able to manipulated their reported cash flows， revenues， expenses， assets and liabilities to hide the real story， depending on their situation。 It's important to not only look at numbers presented， but also read notes to financial statements to uncover any irregularities on inconsistences。 This is work that not a lot of analysts do and is why a lot of fraud can and does go undetected。 The book is light hearted， easy to read and shows a range of real life examples that explain their reasoning。This book would be good to re read at different points of time as a refresher。 Red flags include aggressive revenue recognition， cash flows that don't reflect earnings， swelling intangible assets， significant write offs when new management joins， insider sell downs， swelling inventories， reclassification of cash flows from investing to operating， auditor changes and many others。 。。。more
Brentley Campbell
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The bible for accounting tricks。 One to keep referring back to。 Finally read the whole thing vs just chapters！
Nikunj
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Recommended by Mohnish pabrai in his talk in "The ten commandements of investment management" published on Mohnish pabrai's youtube channel on 13 Oct 2018 Recommended by Mohnish pabrai in his talk in "The ten commandements of investment management" published on Mohnish pabrai's youtube channel on 13 Oct 2018 。。。more
Mauro Cunha
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good read for bull markets。 a little too colourful for professional investors， but still brings good reminders。
Tianhang Hu
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A fascinating read ！ Very insightful。 The author taught me ways to look at financial statements from a whole new perspective， and how to make investment decisions better， although I'm not currently a fund manager。。。 A fascinating read ！ Very insightful。 The author taught me ways to look at financial statements from a whole new perspective， and how to make investment decisions better， although I'm not currently a fund manager。。。 。。。more
Andrew
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This book is a well presented， systematic approach of pulling back the curtain on the murky hidden world that is concealed by at best meaningful figures， at worst fraudulent misrepresentations， clearly outlining the deficiencies found within the grey area of accounting， a grey area which manifests due to an incessant reliance of self-conflicting policing practices。This book is nothing short of eye opening， obviously recommended reading for all interested in finance & accounting， but I would not This book is a well presented， systematic approach of pulling back the curtain on the murky hidden world that is concealed by at best meaningful figures， at worst fraudulent misrepresentations， clearly outlining the deficiencies found within the grey area of accounting， a grey area which manifests due to an incessant reliance of self-conflicting policing practices。This book is nothing short of eye opening， obviously recommended reading for all interested in finance & accounting， but I would not hesitate to suggest recommended reading for all， to provide a greater understanding of the reality of 'money management'。 。。。more
Tharit Tangkijwanichakul
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A bit technically advanced for relatively inexperienced investor like me。But as the stories go， the book repeatedly reminds how critical the management team is。 Anything can go wrong if the incentive is seductive enough cause there’ll always be those who are willing to trade their integrity for jail tickets。
Nguyễn Thanh Huyền
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It is the book taking longest time ever to finish due to its extensive academic knowledge。 In spite of that， I have collected so much accounting knowledge and recognition through practical stories。 The book is written in the easy-to-follow order that everyone is able to absorb。 Will definitely read it again to deeply understand the content。 Strongly recommend this book for people working in accounting and assurance field。
Carlos Salas
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If you already know the basics on accounting and financial statement analysis as well as you work in the investments industry， this is your book。 There are more books about forensic accounting aimed at accountants， yet this book is aimed at investing practitioners looking forward to hone their forensic accounting skills in order to avoid avoid fraudulent long picks or screen good shorts ideas from an accounting and fundamental standpoint。Some examples about what you will learn are how to identif If you already know the basics on accounting and financial statement analysis as well as you work in the investments industry， this is your book。 There are more books about forensic accounting aimed at accountants， yet this book is aimed at investing practitioners looking forward to hone their forensic accounting skills in order to avoid avoid fraudulent long picks or screen good shorts ideas from an accounting and fundamental standpoint。Some examples about what you will learn are how to identify bogus revenue， detect when the management is using one-time or unsustainable activities to boost profits， spot a shift in current expenses to a later period， confirm if a company is inflating operating cash flow using M&A or asset disposals， and many others。 。。。more
Luke Durbin
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With a title that includes the word "Shenanigans" you might be led to believe this will be a wild an wacky adventure through financial history。 While this is somewhat true you'll be disappointed if you're looking for a laugh a minute。 As a financial analyst and investor I found this book most helpful。 Much of what is discussed is common sense， but perhaps mostly only in hindsight。 I found myself scrambling to take notes the whole way through as the content is so applicable to financial analysis With a title that includes the word "Shenanigans" you might be led to believe this will be a wild an wacky adventure through financial history。 While this is somewhat true you'll be disappointed if you're looking for a laugh a minute。 As a financial analyst and investor I found this book most helpful。 Much of what is discussed is common sense， but perhaps mostly only in hindsight。 I found myself scrambling to take notes the whole way through as the content is so applicable to financial analysis and so logically laid out that I wanted to be able to recall each individual tenet described。 The book masterfully gave examples of each shenanigan described with a company they discovered were using accounting trickery to mislead investors， which was good because without it the book would have been seriously lacking。 Probably not a book I'd recommend to people with only a passing interest in finance， but if you're serious about investing and financial analyst it's an absolute must read。 。。。more
Readquish
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very good and insightful。 Explained in a very simple way。With accounting background most of it is common sense but is very good to have the cases layed out and explained。
Tharakanadha Maddipatla
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Book is divided into Four partsPart 1: Introducing and need to know gimmicksPart 2: Earnings gimmicksPart 3: Cash Flow gimmicksPart 4: Key metrics gimmicks。Major accounting scandals happened around west world are discussed。A good read for auditors to identify the intentions of management， if any bad are there。
Giorgio Giuliani
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This is a superb book to get a real exposure to common financial shenanigans。The author explains classic schemes used by corporations to essentially misrepresent the real state of their businesses。It is highly suggested to people with an interest in corporate finance and investing to have a better comprehension of how to read financial statements。
Bùi Hà
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I started this book around 1 year ago and have had hard time to finish it due to my lack of knowledge in accounting and my lose of interests while reading the book。 I expected the books to be more like a seminar documents with more detailed examples / problems rather than broad claims and general examples （Who don't know Enron， Worldcom， Toshiba were a fraud？）。 However， the book does provide useful accounting knowledge， especially for accounting beginners so I rate it 4 stars。## Pros ##This book I started this book around 1 year ago and have had hard time to finish it due to my lack of knowledge in accounting and my lose of interests while reading the book。 I expected the books to be more like a seminar documents with more detailed examples / problems rather than broad claims and general examples （Who don't know Enron， Worldcom， Toshiba were a fraud？）。 However， the book does provide useful accounting knowledge， especially for accounting beginners so I rate it 4 stars。## Pros ##This book teaches you how to read through the line and connect accounting items in the finance reports to understand the health of beneath business。 In presents various ways accounting items can be manipulated and methods to detect those manipulations。 Each chapter also includes various real life use cases of businesses， whose managers intentionally manipulated their businesses' earnings， cash flows， key financial metrics， to deceive investors。## Cons ##The examples in this book is not detailed enough and you might need to actually dig into the company's IR report to find the gimmicks。 Some companies were requested by law enforcement at the time the gimmicks were detected， so you might not able to find the problematic report。 Some points in the books to me don't sound like a gimmicks to me as they are not 100 percent illegal， so you were left with uncertainties whether the fraud was there。 。。。more
Jared
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Probably a good book for somebody better versed in accounting。
Giedrius Andriunaitis
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What ‘A’ book！
Michael Burg
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How can you make accounting interesting？ Read this book。 But you will first need a solid understanding of GAAP。
Carrie
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# ch2 what are financial shenanigans - more efforts devoting to boast revenues than underestimating expenses- shenanigans range from benign to outright fraud- keeping eye on mgmt， companies in the category: fast-growth， aging or small company dreaming for IPO（recording rev。 too soon）， basket-case， newly public， private# ch3 sources of informationpress release， SEC filings， company interview， commercial databasetable 3-3: auditor's report，。。。# ch4 recording revenue too soonwatch for- cash flow fr # ch2 what are financial shenanigans - more efforts devoting to boast revenues than underestimating expenses- shenanigans range from benign to outright fraud- keeping eye on mgmt， companies in the category: fast-growth， aging or small company dreaming for IPO（recording rev。 too soon）， basket-case， newly public， private# ch3 sources of informationpress release， SEC filings， company interview， commercial databasetable 3-3: auditor's report，。。。# ch4 recording revenue too soonwatch for- cash flow from operation lagging behind reported net income- big jump in receivables- change to more aggressive revenue recognition policy- industry other than aerospace manufacturers using percentage of completion （POC） accounting- unbilled receivables grow faster than billed receivables- "bill and hold" revenue recognition （inventories are in a third warehouse owned by the company） 。。。more
Chris Esposo
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The best of it's kind， a case study approach to forensic accounting， similar to "What's Behind the Numbers？"， published by Wiley competitor McGraw Hill。 "Financial Shenanigans" has a simple theme -there are all kinds of ways to obfuscate business activities when non-GAAP accounting practices are reported to the public， and many of these tricks center on a range of things from simply allocations of liabilities to profits， to more sophisticated measures like coordinating with vendor/supplier/buyer The best of it's kind， a case study approach to forensic accounting， similar to "What's Behind the Numbers？"， published by Wiley competitor McGraw Hill。 "Financial Shenanigans" has a simple theme -there are all kinds of ways to obfuscate business activities when non-GAAP accounting practices are reported to the public， and many of these tricks center on a range of things from simply allocations of liabilities to profits， to more sophisticated measures like coordinating with vendor/supplier/buyers to quicken/slow down/exaggerate purchases often manifesting themselves as channel stuffing， double counting， or mis-attributing profits from serial acquisitions to name a few。The later is probably the best known trick as the lack of strict government oversight in this case led to several M&A booms （and busts） over the past few decades。 As a personal aside， I found it especially funny that one of the small-fry cases the text reviews was one from Kevin O'Leary， currently a co-host of "Shark Tank"， the so-called "Donald Trump of Canada"。 Specifically， his potentially underhanded sale of his company "The Learning Company"， a sort of shell firm that was able to portray itself as a profitable company by rapid acquisitions of other companies and listing those as assets for the black in their books， to Mattel， who themselves were doing the same thing。Unfortunately for Mattel， their accountants failed to do their due diligence and dramatically overpaid for a company made up of smaller entities， many of which were bleeding capital quarter-over-quarter。 Mattel's CEO resigned shortly after reporting multi-billion dollar losses， and in hindsight， we've seen Mattel in general declining in relative to terms since that deal with other main competitors， like Hasbro。 The book outlines this trick several times in many different cases， and it never。 One case of this that is briefly mentioned at the beginning of the text， but not actually cases was that of CUC， who's acquisition of Sierra Online destroyed that company， a story that has still not been properly written on but any text in the market。What makes many of these tricks hard to stop is they often deal with activities that are not outright fraud， i。e。 writing bogus numbers to the book， but instead deal with manipulating business operations in sales and supply chains to shift regular institutional activity to meet or exceed quarterly reports。 In recent time， company's like IBM have been accused of this sort of thing in the business press。The book is a good intro to this field and combined with either a formal course in accounting and/or forensic accounting， especially focused on fraud analytics， could probably serve one well in a plethora of applications from traditional corporate finance and audit/accounting， to informing valuation of companies for investment and/or IPO purposes。 For the later use-case， it's especially good that so many case-studies of accounting trickery are outlined， to provide historical context in ways the recently （or imminently public） company could be portraying themselves more desirable than they really are， especially since many of these newer firms will be engaging in high-volume sales in their first few quarters at least， an activity that is definitely rife with potential manipulation。 Highly recommended 。。。more
Stacy
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Didn't finish this book since as a cpa lawyer， the discussions are pretty much basic knowledge。。。。 Didn't finish this book since as a cpa lawyer， the discussions are pretty much basic knowledge。。。。 。。。more
Maciek Lesiczka
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Informative book filled with many real-life examples。 Must read。
Ashfaque Reza
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If there is an option to give 6 star， I would like to give。 The author gives extensive effort to showcase financial gimmicks with real life example。 But sometimes the author stretched few points to give more emphasis。 Overall， Its a solid book。
Pedro Zagury
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