Financial Analysis. Lesson 30. Financial Statement Manipulation and Forensic Accounting
Financial Analysis. Lesson 30. Financial Statement Manipulation and Forensic Accounting
Financial statement manipulation involves altering financial reports to mislead stakeholders.
Forensic accounting investigates financial fraud and irregularities within organizations.
Earnings management uses accounting techniques to influence reported profits.
Revenue recognition defines when and how revenue is officially recorded.
Channel stuffing inflates revenue by pushing products onto distributors early.
Cookie jar reserves set aside funds to smooth out future earnings.
Off-balance-sheet financing hides liabilities to make balance sheets appear stronger.
Creative accounting manipulates figures to present a more favorable financial position.
Fraud triangle includes three factors: pressure, opportunity, and rationalization for fraud.
Expense misclassification disguises costs by categorizing them in less obvious accounts.
Bill-and-hold sales record sales without transferring goods, inflating revenue.
Round-tripping inflates revenue through circular transactions with other companies.
Asset write-downs reduce asset values to reflect impairments or losses.
Goodwill impairment lowers goodwill value when expected future profits decline.
Inventory obsolescence reflects potential losses from unsellable or outdated goods.
Audit trail tracks all transactions to uncover manipulation or discrepancies.
Red flags are indicators that suggest potential financial manipulation.
Restatement is the reissue of corrected financial statements after inaccuracies.
Accounts receivable aging evaluates the collectability of outstanding customer balances.
Unqualified audit opinion indicates that financial statements are fairly presented.
Qualified audit opinion signals that certain areas of statements need attention.
Material misstatement involves significant inaccuracies in reported financial data.
Bank reconciliation compares company records with bank statements for accuracy.
Phantom revenue reports unrealized income to inflate financial performance.
Skimming involves taking cash before it’s recorded on financial statements.
Asset misappropriation is the theft or misuse of company resources or assets.
Occupational fraud is deceit committed by employees for financial gain.
Internal controls safeguard against fraud through checks, balances, and monitoring.
Forensic audit digs deep into financial data to uncover fraudulent activity.
Financial transparency ensures accurate, honest reporting for stakeholders’ confidence.
Technical Examples:
Forensic audit helps detect manipulation by thoroughly analyzing financial data.
Red flags alert forensic accountants to potential financial statement irregularities.
Revenue recognition policies determine if income was correctly recorded.