Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports, 3rd Edition

I recently read through most of the book written by Howard Schilit. It was a very rewarding experience and I will keep going back to this book frequently as I read through annual reports for public companies. To set the expectations, this book is useful in looking behind the numbers and understanding the real significance of the swings year over year( or quarter over quarter). It will empower you in a whole different way and you will be able to get more insight into the operational strength/growth of the underlying company. I have been reading 10-K and 10-Q reports for over 3 years now. I never buy a stock unless I have read through the recent filings. This helps me understand the state of the business, the growth prospects and to some extend the risks in the sector. I would say though, out of experience, that just looking at the numbers is not going to help much. Doing the vertical and horizontal analysis will give more insight as to the growth of the company. For sometime now I was searching for books that shed light on the analysis of "Statement of Cash flows", but I did not find any. After reading this one, I no longer need to refer to any book for analysis of annual and quarterly reports. The author has done an amazing job of explaining how companies can manipulate( or outright break) SEC guidelines for accounting rules. The book provides easy to understand guidelines to review the company reports with a new perspective and help build our own framework for the analysis. If you understand basic accounting, what 'Income Statement', ' Balance Sheet' and "Statement of Cash Flows' stand for, you will benefit largely for reading this book. You will mostly hear people say that its very important to read the section 7 ( or 7A) in the annual reports. This is where the management explains the growth of the company, talks about the strategy and future plans. This is the place where management tells you( the investor) what they want you to know. And they hide all the important stuff ( like revenue recognition changes, changes to depreciation schedule etc) in the foot notes, where we rarely go ( they are at the end of the reports which are already about 100 pages long). What I found surprising is that its so easy to manipulate the data to portray a stronger operational growth for the company. One word of caution though, this is not a read and forget exercise. Once you read the book and understand the shenanigans, you will have to put considerable effort to read behind the numbers. I would say that you will require at least twice as much time to do this as compared to the time you invested earlier. But take my word, that it will be well worth it and you can save your portfolio from the shock when the companies are penalized for these tricks.

As a financial accountant, I have special appreciation for "Financial Shenanigans" by Schilit and Perler. Like the preface mentions, this book truly provides the "post-mortem analysis" it promises. It clearly narrates the most infamous financial reporting failures in history (US, Europe, & Asia), and the lessons such fraudulent mistakes offer those who wish to learn. Not only does it serve as a quick reference for all possible fraudulent methods to date, but also as a review of core financial accounting principles (US GAAP) and basic performance ratio calculations. In addition, it is intelligently written, and easy to follow and comprehend. More specifically, it also employs humor in a smart, witty manner. It does a great job of drawing in readers who appreciate reading up-to-date, practical accounting/finance material they can apply to their professions (outside of academia). Best of all, it isn't dry, but engaging! I expect my copy will become worn and dog-eared within a short period of time, as this book has become my most trusted coworker and best companion at the office. I am looking forward to following these two authors and reading more of their upcoming work. My personal opinion, of course, but perhaps more MBA's and senior executives ought to read this book and educate themselves! We're on to you, C-suite! Brilliant, useful, and insightful! Well done! 10 out of five stars!

As one who invests for long term reliable income using the dividends paid by publicly traded stocks, I find the content of this book good and most of it useful, at least at the conceptual level. The author gives several examples of companies who have accelerated earnings, delayed expenses and booked what should have been operational cash flow as cash flow used for investing activities. This is good and helpful. But what the book does not do is show you where you can find such information in the quarterly or annual shareholder reports. Where would I go to find information that would lead me to understand that the company is selling its A/R and what wording is typically used that would suggest A/R has been sold? And one constructive suggestion to the author....most who will want to read your book are sophisticated enough to know the basics of financial statements and are likely interested in getting into the 'meat' of the shenanigan. But you often begin chapters or descriptive sections of a chapter with somewhat lengthy quaint metaphorical examples as a lead in to the shenanigan you're about to address. As I progressed through the book, I found this distracting and would skip those pages. I appreciate keeping the book interesting and non-boring, but sometimes a little bit of analogous description goes a long way :-) Otherwise, this is a very good book on this subject.

My major IS accounting, but that is not the only reason I would have others read this book. I think that it is a really important read for most everyone! It does not get too technical or confusing: as long as you have a basic understanding of financial statements and what they are supposed to represent, this is a useful read where you can get a look at how some of the great financial scandals of the last few decades were perpetrated and how they were discovered. Anyone working in any business should be aware of how financial statement fraud can occur and the circumstances that preclude it. The authors also put some humor in it, because sometimes you just have to, especially in the face of some of the worst shenanigans that have occurred! As human beings, it helps to deal with some bad things by infusing some "funny" into them.

I bought the book to learn more about statement of cash flows manipulation. The book covers much more than that and does so in an entertaining manner. I liked the capsule summaries in every chapter. The case studies were short and to the point. They involved companies I would not have thought would be involved in dishonesty and deception. Of course the "classics" were covered - Enron and World Com. Great reading for a small investor. There's a lot of "how to read between the lines" in disclosure statements. It's the author's third edition - updated for all the new ways companies try to cheat their investors and creditors.

The information is old but (I think) it is still relevant. Of course financial managers have become more smart these days but the information in this book still serves as a good starting point when reviewing financial statements, especially while working on financial statement models and valuation model inputs respectively. For example, after reading this book one can easily understand that EBIT or EBITDA is not simple mathematical calculation on the income statement. This book provides somewhat exposes black box research level approach when looking at company's financial statements. One last important point, after reading this book one can easily understand the reason and value of why to dive deep in company reports to catch often overlooked details.

This is a great book if you're interested in the inner mechanics of financial manipulation and fraud. It's in a very reader friendly format. As such, it has information of use for anyone from novice to those with significant accounting experience. It explains in reasonable detail the tactics employed by the mildly creative to the outright crooked. Unfortunately, it will almost always be impossible to catch the the really clever con men in a timely fashion. That being said, the knowledge contained within this book levels the playing field somewhat, and should make catching the less cunning easier.

The case studies are helpful, but it's a bit ponderous of a read after so many of them. While case studies of things like industrial accidents or what have you can sometimes be exciting/dramatic, these don't have too much sizzle, and the general patterns get to be repetitive. The author also might also have considered giving the reader more elaborate details of some reports, and challenging the reader to detect the malfeasance as they would see it with a report in the wild.

This book gives us cases by which a stock analyst can understand the pitfalls in a company's financial statements. A must read for anyone trying to invest or advice.

Utile

De forma clara e direta o livro mostra diversos casos reais de como diretores e gestores de empresas conseguem iludir os investidores, mostrando a importancia de uma boa diligencia antes de investir em algo.

Excellent livre permettant de détecter les fraudes dans les comptes financiers des sociétés. L'écriture est claire, le texte bien structuré et les concepts applicables tout de suite. La 3ème édition est bien revue et augmentée.

This book is a good read and provides many examples of fraud. Thus hightening the senses of the reader for questionable practices