Showing posts with label Financial Fraud. Show all posts
Showing posts with label Financial Fraud. Show all posts

Tuesday 11 April 2017

Late filing of financial accounts

Unfortunately, a small minority of companies file their accounts late or even not at all.

This is an offence for which the directors can be punished and the company incur a penalty, but it does happen.

It is often companies with problems that file late.

Sunday 25 December 2011

'Channel Stuffing' is usually done fraudulently to raise the value of the stock.

A deceptive business practice used by a company to inflate its sales and earnings figures by deliberately sending retailers along its distribution channel more products than they are able to sell to the public.

By channel stuffing, distributors temporarily beef up their accounts receivables. However, unable to sell the excess products, retailers will send the excess items instead of cash back to the distributor, who must readjust its accounts receivable and ultimately its bottom line. In other words, stuffing always catches up with the company, because it cannot maintain sales at the rate it is stuffing.

This is usually done fraudulently to raise the value of the stock. Channel stuffing is illegal.


Read more: http://www.investopedia.com/terms/c/channelstuffing.asp#ixzz1hVql8RCY

Tuesday 6 December 2011

Our corporate punishments are the laughing stock among foreigners. A man was sentenced to 25 weeks in jail for stealing 80 pairs of women's panties.


Time for harsher penalties

Published: 2010/06/07


There are many ways to destabilise or mismanage a company, and in Kenmark case, its top executive and directors from Taiwan went AWOL


There are many ways to destabilise or mismanage a company, and along the way, upset and annoy its minority shareholders.

In the case of Kenmark Industrial (M) Co Bhd, its top executive and directors from Taiwan went AWOL. The furniture maker's shares were sold down, losing some RM140 million of market value in a matter of days. The stock did bounce back, but not before a big damage was done and a new, "friendly" major shareholder was installed.

The latest file marked "How to upset your minority shareholders" involves Linear Corp Bhd. Initial company probe showed that one of its directors had used his autocratic rule to hand out RM36 million to a project owner/developer. The amount was an advance for a RM1.66 billion contract Perak Linear had secured from the developer, but appeared not viable.

Kenmark and Linear are among a list of listed companies that have run foul of corporate rules. Kimble Corp Bhd and Tat Sang Bhd are counted in the list, too.


Kimble, another Taiwan-owned furniture maker, breached a listing requirement in 2008 for failing to disclose in its fourth quarter 2007 results that it had made provision for doubtful debts of RM33.7 million.

Its managing director Datuk Yao Bor Bin and former executive director Yao Po Chen were fined by Bursa Malaysia a total of RM75,000 "for being ambiguous and inaccurate in the announcement". The company was delisted in April 2009.

Tat Sang, another furniture maker, shocked investors with its accounting irregularities and the disappearance of key management personnel back in 2002.

Its former managing director Lim Chai Hock was sentenced to five years' jail by the Sessions Court for making false statements to Bursa Malaysia. The sentence was revised by the High Court to a five months' jail and a fine of RM200,000 in default of two months' imprisonment.

Tat Sang was plagued with financial woes just a year after its listing in 2000. It was eventually delisted in 2003.

The point here is that once a corporate manipulator is caught and goes to court, make sure he (interestingly, women is almost or non-existent in the issue) is punished accordingly.

While our local stock market watchdogs, the Securities Commission particularly, may have been swift in their action, the punitive measures appear lenient on corporate manipulators.

Some have said in jest (or are they not kidding?) that our corporate punishments are the laughing stock among foreigners. Swindle loads of money from your company and leave the country, you can then come back and face the low-decibel music.

We may have read that a man was sentenced to 25 weeks in jail for stealing 80 pairs of women's panties. For mismanaging or embezzling millions of ringgit or causing hurt and grievance to many investors, you just get a fine or a brief spell in prison. Some balance in blue and white collar crimes, right? Is there a very fine line in steal, cheat or lie between a corporate man and an ordinary Joe?

In February 2006, it was reported that Fountain View Development Bhd former director Datuk Chin Chan Leong and ex-remisier were found guilty of share manipulation.

Chin was fined RM1.3 million or in default of 13 months' jail as well as sentenced to serve one day in prison for manipulating its share price seven years before.

Hiew Yoke Lan, a former Avenue Securities Sdn Bhd remisier, was fined RM1 million or 10 months default jail sentence for abetting Chin in the offence.

The offence was committed between November 18 2003 and January 20 2004. During this period, Fountain View stock had a low of RM1.99 and a high of RM6.15.

Back in November 2003, at a low of RM1.99, Fountain View carried a market capitalisation of RM885 million. At the peak of the share manipulation of around RM6.15, Fountain View carried a market capitalisation of RM2.73 billion!

If Datuk Seri Idris Jala can overhaul the various subsidies enjoyed by us, how hard can it be to review and slap the harshest possible punishment on corporate manipulators?

Read more: Time for harsher penalties http://www.btimes.com.my/Current_News/BTIMES/articles/zuview6/Article/index_html#ixzz1fhYjGpf6

Sunday 10 October 2010

Kiss corporate governance goodbye when punishment meted is not commensurate with the crime

Saturday October 9, 2010
Too little punishment for too much
A QUESTION OF BUSINESS
By P. GUNASEGARAM

If directors continue to get away with a mere slap in the wrist for major offences, you can kiss corporate governance goodbye.

POOR Securities Commission! It goes to all that effort and pain to bring corporate miscreants to book and what happens, they go free – more or less. For what is a hefty fine when the amount they defrauded is many times more than that?

That is an affront to the public which sees white-collar criminals get away with far less in terms of sentences although many millions of ringgit are involved. Comparable common thefts see much more punishment.

Then, there are the corollary effects. The confidence and integrity of the market itself becomes affected when the investing public, both local and overseas, become disillusioned with standards of corporate governance here. What incentive is there to behave when you can get away with so much for so little?

For corporate crime to be seriously reduced, two things need to happen immediately. First, the courts must realise the seriousness of these crimes and mete out the necessary punishment, even when the plea is guilty.

Second, agencies responsible for enforcing legislation must do their part to investigate and bring to book those who break the law. The Securities Commission seems to be doing its part when it comes to securities laws but the same cannot be said of the Companies Commission of Malaysia when it comes to enforcing the Companies Act.

If these two things don’t come together, we can pretty much say goodbye to the attempts by some of our regulators and enforcement agencies to increase corporate governance standards and bring about a much higher standard of behaviour among our corporate chieftains, standards which are abysmally low right now.

Let’s take the latest such case. It was reported earlier this week that a former director of a de-listed company, Pancaran Ikrab, broke down and wept when a judge handed down a custodial sentence of one day (yes, that’s right) and a fine of RM2mil for fraud involving millions.

Former managing director Ngu Tieng Ung committed two counts of financial fraud involving RM15.5mil 13 years ago. Sessions Court judge S.M. Komathy Suppiah allowed Ngu, 43, to pay the fine in 12 instalments starting next month, to be paid by the fifth of each month or a 30-day jail sentence if he fails.

“Are you crying because you are happy or sad?” she asked a sobbing Ngu, who did not respond. At this juncture, Ngu’s counsel Ng Aik Guan went up to the dock to speak to him and later told the judge that Ngu was “too emotional”, The Star reported.

Meantime, the Securities Commission only thinly disguised its disappointment with the sentencing. It said in a statement on Oct 5: “Datuk Lybrand Ngu Tieng Ung was convicted by the Kuala Lumpur Sessions Court today for two counts of securities fraud.

“He had utilised RM15.5 million of Pancaran Ikrab Bhd’s (PIB) funds in October 1997 to finance his entry into the company. The monies financed his purchase for the controlling shareholding in PIB. PIB was then listed on the Second Board of the Kuala Lumpur Stock Exchange.

“When he resumed the post of director of PIB, he had caused in total RM37 million to be transferred out of the company. This amount was never recovered and was written off in its accounts. This resulted in PIB being financially distressed and its listing status was taken over by DCEIL International Bhd on July 19, 2004.

“The penalty for securities fraud is a minimum fine of RM1 million and imprisonment of not more than 10 years. Sessions Court judge, Puan S.M. Komathy Suppiah sentenced Ngu to 1 day imprisonment and a fine of RM1 million for each offence. The imprisonment terms to be served concurrently.”

Now, the scale of the offence becomes much clearer. Ngu used RM15.5mil to finance his purchase of shares in Pancaran Ikrab and caused RM37mil to be transferred out of the company, making in all a massive RM52.5mil.

And all he got was a day’s jail and a fine of RM2mil. Why? And there was nothing said about restitution or return of the monies.

If you think this was an isolated instance of a person committing corporate fraud receiving a light sentence, you are wrong. Just this year alone, there have been a number of light sentences given.

In March this year, the Kuala Lumpur Sessions Court convicted Chan Kok Suan, the former managing director of Granasia Corporation Bhd for submitting false statements to the Securities Commission as part of the application for an initial public offering.

Chan was convicted under section 32B(4) of the Securities Commission Act and was fined RM500,000, in default 10 months imprisonment, according to the SC.

In February, the Kuala Lumpur Sessions Court convicted Ooi Boon Leong and Tan Yeow Teck for knowingly authorising the furnishing of a misleading statement by MEMS Technology Bhd, a company listed on the then Mesdaq market, to Bursa Malaysia Securities Bhd.

The Sessions Court sentenced each accused to a fine of RM300,000 (in default two years imprisonment).

Last November, the Securities Commission secured a conviction against Datuk Tan Hooi Chong for abetting Kiara Emas Asia Industries Bhd in the misappropriation of the rights issue proceeds amounting to almost RM17mil between Dec 16 and 31, 1996.

Tan pleaded guilty to the offence under section 32(6) of the Securities Commission Act 1993 read together with Section 40 and Section 109 of the Penal Code. Tan had also admitted to misutilising the rights issue proceeds for his personal benefit. He was fined RM600,000.

The common thread through all these convictions, and many earlier higher profile convictions, is that none of them was custodial (except for the latest one-day custodial sentence) even though the offences were serious and in many cases involved millions of ringgit.

But let’s look at another case. In March, former Perbadanan Komputer Nasional Bhd chief executive officer Zulkifli Amin Mamat was sentenced to four years’ jail and three strokes of the rotan for criminal breach of trust involving RM1.61mil.

Why the anomaly? Is criminal breach of trust very different from what these other directors were doing? Obviously not.

That must mean, if we take other more sinister conclusions out of the equation, that judges don’t seem to understand the seriousness of corporate crime and the extremely deleterious effects they have on the capital markets and thousands and millions of shareholders of public-listed companies.

The only way that such lack of understanding or otherwise can be overcome is for the Chief Justice, Tun Zaki Azmi, himself to step in. Zaki has been working tirelessly to reduce backlogs and has taken strong, controversial steps in this direction. But the lack of punishment of corporate crime is one area that demands immediate attention too.

It will be no exaggeration to say that the future of the country depends on it because no country has been able to reach the pinnacles of progress and achievement without a healthy corporate sector. And you can’t have that without adequate punishment of the bad hats.

● Managing editor P. Gunasegaram does not only believe that justice delayed is justice denied. He also believes that justice denied is, well, justice denied. Period.

http://thestar.com.my/columnists/story.asp?file=/2010/10/9/columnists/aquestionofbusiness/7191225&sec=A%20Question%20Of%20Business

Monday 16 August 2010

Bank fraud: know your rights

Bank fraud: know your rights
Adam Courtenay
August 10, 2010
Short of being physically held up by thieves, one of the more disquieting modern day experiences is being pilfered electronically.

Anyone who has had an account stripped clean of cash, either online, through credit card fraud or by card skimming, will know all about the panic and fear that ensues.

These were the emotions that overcame Peter Westhuyzen* when he discovered on a Monday morning earlier this year that his cheque account at St George had been plundered of $4000.

He immediately phoned St George, who asked him to report the theft to his branch in central Sydney. He knew one thing – he only ever used a single ATM in Sydney’s CBD. When he arrived early at the branch, Westhuyzen discovered about 30 other people waiting outside who had been similarly hit over the weekend.

All had used the same ATM and all had had money stripped via another ATM based in Canberra. Some had even been double-fleeced, once from the Canberra ATM and a second time from another in London.

It is believed a skimming device had been fitted at the “mouth” of the machine to copy the person’s card details. A micro-camera would then have been installed by the thieves to capture the pin number as the person keyed it in. The gang would have then transferred the skimmed data to a counterfeit card and the robberies were easily perpetrated remotely.

Most new machines have shields placed onto their key pads, or are chip and pin “capable”. That is, they use computer chips to store information rather than the more easily-cloned magnetic stripes. All Australian ATMs must be chip and pin “capable” by January 1, 2011. Westhuyzen was swiftly reimbursed as it was clear the fraud had occurred on a large scale. Generally, in obvious cases such as the above, banks refund quickly.

What basic protections do customers have? Banks, credit unions and building societies must subscribe to the Electronic Funds Transfer Code, which protects consumers who use electronic banking such as ATMs and Eftpos, or telephone and internet banking, to transfer funds.

The Australian Securities and Investment Commission has a detailed “Fido” page on its website, which clearly details the rights of customers – and the obligations of banks – when fraud occurs.

Customers are only liable if they are said to have acted with “extreme carelessness”. This may mean that they had given their pin number or online contact details to a friend or family member, but questions may also arise if a theft has not been promptly or accurately reported.

ANZ has a Fraud Money-Back Guarantee which will fully re-credit a customer’s account “as long as they have not contributed to the loss and have notified the bank promptly”. The bank will reimburse claims of up to $10,000 within five business days of receiving completed documentation.

In most cases customers are sent out dispute forms and asked to indicate which transactions were fraudulent. “We send this through to customer repatriation and people generally get their money back within a week," says Brett Small, head of financial crime at National Australia Bank.

Online, things are less clear. Is responding to a convincing “phishing” email tantamount to “extreme carelessness”? In these cases customers are sent an email, and from there induced by a fake website to give out account details. If a bank site has been cloned, is it the fault of the bank or personal negligence on the customer’s part?

Gary Schwartz, an IT expert who runs the website jargonfreehelp.com, says it is worth having up-to-date security software on personal computers to help disprove any possible charge of negligence. All the same, he agrees software plays only a small part in protecting bank, credit card details and other accounts like PayPal, where money is moved.

"Common sense plays the biggest part in all this," Schwartz says. "If you get an email with links to your bank, PayPal or any other website that requires a login to an account, do not click on the link, go to your browser and type in the website address to see if it is the real thing."

Banks claim their protective technology is now more proactive than reactive. Small says NAB can now detect 90 per cent of fraud cases “within minutes or seconds”. The big four banks use technology that throws up red flags when transactions fall outside the customer’s normal usage patterns – patterns based on geography, amount and time.

“It would ask why a transaction is happening at 2.00 am, and why in the UK? We can see hundreds of anomalies in real time and stop it in real time if necessary,” Small explains.

There are now also extra layers of security such as tokens which display changing numbers that must be punched in to complete an online transfer, as well as SMS alerts to inform customers of any large money movements.

There are times when the bank will question the validity of a fraud, and in these situations, things may not go so smoothly. Small says a bank has to protect itself from false “victims” and the bank has a highly trained team of fraud examiners which will question customers – politely, of course.

“We ask the customer to fill out a statutory declaration and also a police report. These are measures designed to make them think twice [about committing a fraud],” he says.

*Not his real name.

http://www.smh.com.au/money/on-the-money/bank-fraud-know-your-rights-20100810-11ums.html

Friday 30 July 2010

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Sunday 6 June 2010

How to be a wiser investor



Saturday June 5, 2010

How to be a wiser investor
Review by ERROL OH
errol@thestar.com.my

How to Smell a Rat: The Five Signs of Financial Fraud

Author: Ken Fisher, with Lara Hoffmans

Publisher: John Wiley & Sons

WHICH kind of investor are you – Confident Clark, Hobby Hal, Expert Ellen, Daunted Dave, Concerned Carl or Avoidance Al? If you’re one of the first three, there’s little chance that you’ll lose money in a scam, according to Ken Fisher, head of Fisher Investments, a California-based money management firm, and a longtime Forbes columnist.

But he believes that Dave, Carl and Al ought to be extra vigilant in making investment decisions, particularly when it comes to choosing advisers.

He warns: “Con artists love Dave, Carl, even Al. If you see yourself in one of them, you’re more likely to hire a pro, but you’re also more likely to be conned.”

Having spent decades managing money, and writing and speaking on investments, Fisher has learnt plenty about investors. With some clever use of alliteration, he divides them into six categories .

Clark is the sort who thinks he’s the best person to decide where to put his money; he won’t trust somebody else to do that job. Hal is dead serious about investing and is always honing his skills and knowledge in this field. Even when he has an investment adviser, he’ll be in the thick of things. Fraudsters tend to stay away from Hal because he’s too involved in his investments.

Like Clark and Hal, Ellen knows a thing or two about investments and enjoys the challenge of extracting the best returns. However, she’s usually too busy to do it all on her own and will leave it to the professionals. Still, because she’s not easily fooled by fake profits and she’s more questioning than most investors, she’s not your typical fraud victim.

But Dave is, because he’s intimidated by the complexity of investing and prefers to hand his funds over to others to manage. Carl is similar except that his dependence on professional help is driven mainly by the worry that he can’t achieve his investing goals on his own.

Then there’s Al, who will have nothing to do with investments if he can help it. He doesn’t even like thinking about hiring an adviser, but when he does appoint one, he won’t bother keeping track at all.

“Rats are looking for financial illiterates. They want victims who won’t question too hard – either because they’re busy, intimidated, or easily distracted by outsized performance claims,” wrote Fisher.

Not-so-common sense

If you see yourself as Clark, Hal or Ellen, don’t be too quick to think that you’ll never be cheated. Fisher likens such false sense of security to a guy not taking care of his health just because his doctor has declared that he has a low risk of heart failure.


Ken Fisher

He explains: “You may feel like Clark or Ellen right now. But the same investor can actually morph over time into someone else – happens all the time. The way investors see their needs can easily change.”

For example, during bull markets, investors may be assured and aggressive in wanting growth, but when the bears are on the prowl, the same investors sing a different tune as they turn wary and instead focus on capital preservation.

It’s this kind of deep insight and understanding that makes How to Smell a Rat a worthwhile read. It essentially peddles common sense, but Fisher’s vast experience and expertise makes all the difference.

There will always be crooks on the prowl for easy marks, and there will never be a shortage of people who can be seduced by promises of generous returns on their money. As such, anything that helps us avoid investment scams is useful.

Fisher shows the goods very early in the game. On page 5, he lists the five signs (see box) referred to in the book’s subtitle.

“Note: Just because your manager displays one or a few signs, it doesn’t mean they should immediately be clapped in irons. Rather, these are signs your adviser may have the means to embezzle and a possible framework to deceive. Always better to be suspicious and safe than trusting and sorry,” he advises.

If you had committed these signs to memory, you might be tempted to ditch the book at this point, but you would have extracted only a fraction of its value.

Mere awareness of the red flags is inadequate protection; an enlightened and responsible investor should have a reasonable grasp of how con artists operate and of the weaknesses they exploit.

Critical signs

This is where the book comes in most handy. When elaborating on the five signs, Fisher illustrates with examples that highlight commonalities among infamous swindlers such as Charles Ponzi, Ivar Kreuger, Robert Vesco, Bernard Madoff and R. Allen Stanford.

Through this, you appreciate the fact that though the specifics vary, the scamsters’ game plans are pretty much alike. The investment schemes are typically structured in such a away that the advisers have way too much control over the money and the investments.

The advisers promise returns that are almost too good to be true, and they often have trouble articulating their strategies in simple terms. They prey upon the same types of people. If you’re wholly mindful of what these warning signs mean, consider yourself inoculated against the investment fraud virus.

How to Smell a Rat is in part a self-improvement title. It is enriching because Fisher discusses the foibles and circumstances that enable con games to thrive.

When writing about how the culprit behind a hedge fund scam used impressive-sounding gobbledygook to dupe people, Fisher is actually telling us that our pride can lead us down the path to financial ruin.

“Remember, his victims weren’t stupid. But folks who consider themselves smart may not always question -- they don’t want to reveal they don’t understand. Many smart people have a hard time getting their egos to openly admit they don’t understand,” he tells the readers.

Another lesson: The investor himself must do due diligence before handing over his money to the adviser. “(Due diligence is) not complicated, but enough folks won’t do the check – and con artists count on that. It’s your money – you alone must do the check. Don’t let anyone in the middle,” urges Fisher.

Of knights and the Net

Often droll and cutting, the author is an engaging guide and teacher.

A target of his barbs is Stanford, chairman of Stanford Financial Group. In February last year, the US Securities and Exchange Commission filed an action, alleging that Stanford and his companies orchestrated a US$8bil fraud and that he was conducting a Ponzi scheme.

In making his point that fraudsters are fond of crafting flashy facades, Fisher likens Stanford’s knighthood from Antigua to a Cracker Jack box prize. “Elton John’s been knighted – but at least he was knighted by the Queen of England. Still, do you want him managing your money?” he asks.

His opinions are always firm and passionately argued, but at times, they can be rather eccentric, such as his blithe dismissiveness towards the influence of New Media.

“I would never believe things I read on blogs about anyone, ever, good or bad. You have no way to know what’s behind them, and often it’s nonsense. Actually, more often than not, it is nonsense! The Internet and its natural feature of anonymity bring out the very worst in a great many people,” he grumbles.

“Don’t ever believe Internet blog postings or comments on articles on even major websites. There isn’t integrity there, so don’t buy it, either way – whether it’s helping the reputation or defaming it.”

Here he sounds out of step with what’s happening out there, but this shouldn’t detract from the wisdom that Fisher offers in How to Smell a Rat.

According to Ken Fisher, there are ways to tell if your investment adviser may be a swindler or may evolve into one. In How to Smell a Rat, he provides a checklist:

1. The biggest red flag – your adviser also has custody of your assets.

2. Returns are consistently great.

3. The investing strategy isn’t understandable.

4. Your adviser promotes benefits (such as exclusivity) that don’t impact results.

5. You didn’t do your own due diligence, but a trusted intermediary did.


http://biz.thestar.com.my/news/story.asp?file=/2010/6/5/business/6327254&sec=business

Thursday 13 May 2010

Cooking the Books: Investors, be warned.

This discussion should make you better able to see the clues of fraud and remind you to be vigilant.

Managers most often cook the books for personal financial gain - to justify a bonus, to keep stock prices high and options valuable or to hide a business's poor performance.  Companies most likely to cook their books have weak internal controls and have a management of questionable character facing extreme pressure to perform.

All fast-growing companies must eventually slow down.  Managers may be tempted to use accounting gimmicks to give the appearances of continued growth.  Managers at weak companies may want to mask how bad things really are.  Managers may want that last bonus before bailing out.  Maybe there are unpleasant loan covenants that would be triggered but can be avoided by cooking the books.  A company can just be sloppy and have poor internal controls.

One key to watch for is management changing from a conservative accounting policy to a less-conservative one, for example, changing from LIFO to FIFO methods of inventory valuation or from expensing to capitalizing certain marketing expenses, easing of revenue recognition rules, lengthening amortization or depreciation periods.

Changes like these should be a red flag.  There may be valid reasons for these accounting policy changes, but not many.  Be warned.

Related:



Cooking the Books: Sweetening the Balance Sheet

Most often both the Balance Sheet and the Income Statement are involved in cooking the books.  A convenient cooking is exchanging assets with the purpose of inflating the Balance Sheet and showing a profit on the Income Statement as well!

For example, a company owns an old warehouse, valued on the company books at $500,000, its original cost minus years of accumulated depreciation.  In fact, the present value of the warehouse if sold would be 10 times its book value, or $5 million.  The company sells the warehouse, books a $4.5 million profit and then buys a similar warehouse next door for $5 million.

Nothing has really changed.  The company still has a warehouse, but the new one is valued on the books at its purchase price of $5 million instead of the lower depreciated cost of the original warehouse.  The company has booked a $4.5 million gain, yet it has less cash on hand than it had before this sell-buy transaction.

Why would a company exchange one asset for a very similar one ... especially if it cost them cash and an unnecessary tax payment?  The only "real" effect of this transaction is the sale of an undervalued asset and booking of a one-time gain.  If the company reports this gain as part of "operating income,": the books have been cooked - income has been deceptively inflated.  If the company purports that this one-time capital gain is reoccurring operating income, it has misrepresented the earning capacity of the enterprise.


Related:

Cooking the Books: Puffing up the Income Statement

Puffing up the Income Statement most often involves some form of bogus sales revenue that results in increased profit.

One of the simplest methods of cooking the books is padding the revenue; that is, recording sales before all the conditions required to complete a sale have occurred.  The purpose of this action is to inflate sales and associated profits.  A particularly creative technique is self-dealings such as increasing revenue by selling something to yourself.

Revenue is appropriately recorded ONLY after all these conditions are met:

  1. An order has been received.
  2. The actual product has been shipped.
  3. There is little risk the customer will not accept the product.
  4. No significant additional actions are required by the company.
  5. Title has transferred and the purchaser recognizes his responsibility to pay.
The other common route to illegal reporting of increased profit is to lower expenses or to fiddle with costs.  A simple method to accomplish this deception involves shifting expenses from one period into another with the objective of reporting increased profits in the earlier period and hoping for the best in the later period.

Cooking the Books: This is very different from "Creative Accounting."

The vast majority of audited financial statements are prepared fairly.  They are assembled in accordance with GAAP and evidence sound fiscal controls and integrity of management.  However, sometimes this is not the case and financial fraud is committed:  illegal payments made, assets misused, losses concealed, expenses under-reported, revenue over-recorded and so forth.

Cooking the books is very different from "creative accounting."

It is creative to use accounting rules to best present your company in a favourable financial light.  It is legal and accepted.

"Cooking the books" means intentionally hiding or distorting the real financial performance and/or financial condition of a company.  Cooking the books is done for a deceptive purpose and is meant to defraud.


Related:

Cooking the Books: Why do managers cook the books?

Managers most often cook the books for personal financial gain -
  • to justify a bonus, 
  • to keep stock prices high and options valuable or 
  • to hide a business's poor performance.
Companies most likely to cook their books have weak internal controls and have a management of questionable character facing extreme pressure to perform.

"Cooking the books" means intentionally hiding or distorting the real financial performance or actual financial condition of a company.

Cooking is most often accomplished by moving items that should be on the Income Statement onto the Balance Sheet and sometimes vice versa.

A variety of specific techniques can be used to raise or lower income, raise or lower revenue, raise or lower assets and liabilities, and thereby reach whatever felonious objective the businessperson desires.  A simple method is outright lying by making fictitious transactions or ignoring required ones.


Related:

Cooking the Books: Techniques to Sweeten the Balance Sheet

C. Improperly increased or shifted period income.
D. Improperly increased assets and equity.


C.  Improperly increased or shifted period income

C1.  Current expenses shifted into later period
  • C1a.  Improperly capitalized costs as inventory.
  • C1b.  Assets depreciated or amortized too slowly.
  • C1c.  Worthless asset not written off immediately.
C2.  Shift revenue and income into later periods with reserves.


D.  Improperly increased assets and equity.

D1.  Increased equity through one-time gains
  • D1a.  Report gains on exchange of similar assets
  • D1b.  Report gains by selling undervalued assets
  • D1c.  Retire debt.
D2.  Report revenue rather than liability on receipt of cash.



"Cooking the books" means intentionally hiding or distorting the real financial performance or actual financial condition of a company.

Related:

Cooking the Books: Techniques to Puff Up the Income Statement

A.  Improperly increased revenue
B.  Improperly lowered cost or expenses.

A.  Improperly increased revenue

A1.  Sales recorded before completed and final

  • A1a.  Goods shipped before sale final
  • A1b.  Revenue recorded while future services still due

A2.  Bogus revenue recorded

  • A2a.  Supplier refunds recorded as revenue
  • A2b.  Revenue recorded from self-dealing
  • A2c.  Revenue recorded from asset exchanges.

B.  Improperly lowered costs or expenses

B1.  Current expenses shifted into later periods
  • B1a.  Period expenses capitalised onto Balance Sheet
  • B1b.  Assets depreciated too slowly.
  • B1c.  Probable liabilities not accrued.
B2.  Operating losses masked in discontinued operations


"Cooking the books" means intentionally hiding or distorting the real financial performance or actual financial condition of a company.