The
annual financial reports are among the most awaited events in a company’s calendar.
Everyone, including shareholders, investors, fund managers, employees, business
analyst and the management eagerly look forward to the most awaited event i.e.
quarterly and annual financial reports.
Most
of the companies act ethically and follow the prescribed accounting guidelines preparing
such reports while some companies resort to financial shenanigans. Financial
shenanigans are a term used to refer, a company’s misrepresentation of
financial position or performance. They can range from relatively minor
infractions to frauds.
The
Indian IT company Satyam was caught up in a gigantic fraud in 2009 when its
chairman, Ramalinga Raju, confessed to falsifying the company's accounts to the
tune of $1.5 billion. This scandal, often referred to as "India's
Enron," is an example of financial shenanigans.
The idea of this blog is to provide you all information, how companies creatively use accounting techniques to manipulate their numbers. Some of the accounting tricks used are-
Conclusion is companies use multiple creative techniques and accounting practices to show a higher revenue number. So an investor should cautiously examine sales number, cash flows, receivables etc. and should also pay attention to comments and declarations which are made by the auditors in the books of the company.
