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    FInancial Shenanigans (Done)

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    Moch Khildan Gunawan
    1) The document discusses seven types of "financial shenanigans" or accounting tricks used to distort a company's true financial performance. These include recording revenue too soon, recording bogus revenue, boosting income with one-time gains, shifting expenses to other periods, failing to record liabilities, and shifting revenue and expenses between periods. 2) Examples are given for each type of shenanigan, including cases involving companies like Under Armour, Xerox, Boston Market, and Cendant. Warning signs are also provided to help identify when companies may be engaging in these tricks. 3) Special case studies look at Indonesian companies Duniatex and Hanson International, which are alleged to

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    FInancial Shenanigans (Done)

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    Moch Khildan Gunawan
    10 views34 pages
    1) The document discusses seven types of "financial shenanigans" or accounting tricks used to distort a company's true financial performance. These include recording revenue too soon, recording bogus revenue, boosting income with one-time gains, shifting expenses to other periods, failing to record liabilities, and shifting revenue and expenses between periods. 2) Examples are given for each type of shenanigan, including cases involving companies like Under Armour, Xerox, Boston Market, and Cendant. Warning signs are also provided to help identify when companies may be engaging in these tricks. 3) Special case studies look at Indonesian companies Duniatex and Hanson International, which are alleged to

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    1) The document discusses seven types of "financial shenanigans" or accounting tricks used to distort a company's true financial performance. These include recording revenue too soon, recording bogus revenue, boosting income with one-time gains, shifting expenses to other periods, failing to record liabilities, and shifting revenue and expenses between periods. 2) Examples are given for each type of shenanigan, including cases involving companies like Under Armour, Xerox, Boston Market, and Cendant. Warning signs are also provided to help identify when companies may be engaging in these tricks. 3) Special case studies look at Indonesian companies Duniatex and Hanson International, which are alleged to

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    10 views34 pages

    FInancial Shenanigans (Done)

    Uploaded by

    Moch Khildan Gunawan
    1) The document discusses seven types of "financial shenanigans" or accounting tricks used to distort a company's true financial performance. These include recording revenue too soon, recording bogus revenue, boosting income with one-time gains, shifting expenses to other periods, failing to record liabilities, and shifting revenue and expenses between periods. 2) Examples are given for each type of shenanigan, including cases involving companies like Under Armour, Xerox, Boston Market, and Cendant. Warning signs are also provided to help identify when companies may be engaging in these tricks. 3) Special case studies look at Indonesian companies Duniatex and Hanson International, which are alleged to

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 34

    Fakultas Ekonomi & Bisnis

    School of Economic & Business


    Telkom University

    Creating the great business leader

    Financial Shenanigans
    Financial Shenanigans are
    actions or omissions designed
    to hide or distort the real
    financial performance or
    financial condition of a
    company
    - Main source:
    Financial Shenanigans: How to Detect Accounting
    Gimmicks & Fraud in Financial Reports, 3rd Edition
    – May 5, 2010 by Howard Schilit (Author),
    Jeremy Perler (Author)
    Financial S h e n a n i g a n s – The A u t h o r
    Schilit’s Seven Shenanigans

    1 Recording revenue too soon or of questionable nature

    2 Recording bogus revenue

    3 Boosting income with one-time gains

    4 Shifting current expenses to a later or earlier period

    5 Failing to record or improperly reducing liabilities

    6 Shifting current revenue into alater period

    7 Shifting future expenses to the current period as a special charge


    She n an igan No:1
    Recording revenue too soon

     Recording revenue when future services remain to


    be provided

     Recording revenue before shipment or before the customer’s


    unconditional acceptance

     Recording revenue even though the customer is not


    obligated to pay
    Shenanigan No:1
    R e c o r d i n g r e v e n u e of q u e s t i o n a b l e & Inflated Quality

     Selling to an affiliated party

     Giving the customer of something of value as a quid pro quo

     Grossing up revenue
    Shenanigan No:1
    Recording revenue when future services remain to be
    provided – UA

    Source: https://www.wsj.com/articles/under-armour-is-
    subject-of-federal-accounting-probe-11572819835
    Shenanigan No:1
    Recording revenue when future services remain to be
    provided – UA

    Source: https://www.nasdaq.com/market-activity/stocks/ua
    Shenanigan No:1
    Recording revenue when future services remain to be
    provided – GIA

    Source: https://finance.detik.com/bursa-dan-valas/d-
    4603814/kisruh- laporan-keuangan-garuda-ditolak- Source: https://www.cnnindonesia.com/ekonomi/20190628124946-92-
    komisaris-hingga-terbukti-cacat 407304/kemenkeu-beberkan-tiga-kelalaian-auditor-garuda-indonesia
    Shenanigan No:1
    Recording revenue too soon

     WarningSigns

    1. Up-front revenue recognition on long-term contracts.

    2. Cash flow from operation lagging behind net income.

    3. Accelerating sales by changing the revenue recognition policy.


    4. Seller offering extremely generous extended payment terms.

    Watch for changes to more aggressive revenue


    recognitions policies or decisions
    Shenanigan No. 2:
    Recording bogus
    revenue

     Recording revenue from transaction that lack economic


    substance
     Recording revenue from transaction that lack a reasonable
    arm’s length process.
     Recording revenue on receipt from non- revenue-producing
    transactions.
    Shenanigan No. 2:
    Recording revenue on receipt from non-
    revenue-producing transactions – Xerox

    Source: https://www.washingtonpost.com/archive/business/2002/04/02/xerox-to-pay-sec-10-million-fine-
    to-settle-probe/fe101272-50cb-433e-996a-4797a7824d9a/
    Shenanigan No. 2:
    Recording revenue on receipt from non-
    revenue-producing transactions – Xerox
    Shenanigan No. 2:
    Recording bogus
    revenue

     Warning Signs
    1. Recording revenue from transaction that lack a reasonable
    arms’s length process.

    2. Recording cash received from a lender, business partner, or


    vendor as revenue.

    3. Revenue growing much faster than account receivables

    4. Unusual increases or decreases in liability reserves account

    When ‘unbilled receivables’ grew substantially


    faster than ‘billed receivables’
    Shenanigan No. 3:
    Boosting Income with One-time gains

    o Boosting profits by selling undervalued assets


    o Boosting profits by retiring debt
    o Failing to segregate non-recurring activities
    Shenanigan No. 3:
    Boosting Income with One-time gains

    Techniques :

    1. Boosting income using one-time events.


    2. Boosting income through misleading classifications.
    Shenanigan No. 3:
    Boosting Income with One-time gains
    Shenanigan No. 3:
    Boosting Income with One-time gains

    Source: https://www.washingtonpost.com/archive/business/1997/10/19/coming-home-to-roost-boston-market-was- once-a-wall-street-star-but-after-


    a-series-of-missteps-its-sales-and-stock-price-are-falling-and-investors-are-crying-foul- over-the-restaurant-chains-accounting-tactics/d31ec3fb-516a-4e48-
    9a9a-b70085448ca8/
    Shenanigan No. 3:
    Boosting Income with One-time gains

     WarningSigns

    1. Shifting normal operating expenses below the line.

    2. Routinely recording restructuring charges.

    3. Including proceeds received from selling a subsidiary as revenue.

    4. Operating income growing much faster than sales.

    Hid signs of deteriorating business by including


    revenue from noncore source of income
    Shenanigan No. 4:
    Shifting Current Expenses to Later Period

    • Improperly capitalizing costs


    • Depreciating or amortizing costs too slowly
    • Failing to write off worthless assets

    Techniques :

    1. Improperly capitalizing normal operating expenses.


    2. Amortizing cost too slowly.
    3. Failing to write down assets with impaired value.
    4. Failing to record expenses for uncollectible receivables and evalued investments.
    Shenanigan No. 4:
    Shifting Current Expenses to Later Period
    Shenanigan No. 4:
    Shifting Current Expenses to Later Period

    Source: https://money.cnn.com/2000/06/14/companies/cendant/
    Shenanigan No. 4:
    Shifting Current Expenses to Later Period

     WarningSigns

    1. Improperly capitalizing normal operating expenses.


    2. Changes in capitalization policy or accelerated capitalization of costs.
    3. New or unusual assets accounts.
    4. Jump in soft assets relative to sale
    5. Stretching out depreciable asset life.
    6. Improper amortization of cost associated with loans.

    Watch changes in Capitalization Policy just


    before the IPO
    Shenanigan No. 7:
    Shifting Future Expenses to Current Period

    • Techniques

    • Accelerating discretionary into the current period.


    1. Improperly writing off assets in the
    current period to
    • Writing off future years’ depreciation and avoid expenses in a future period.
    amortization during the current year. 2. Improperly recording
    charges to establish
    reserves used to reduce
    future expenses.
    Shenanigan No. 7:
    Shifting Future Expenses to Current Period
    Shenanigan No. 7:
    Shifting Future Expenses to Current Period

    Source: https://www.marketwatch.com/story/wr-grace-reaches-settlement-with-sec-on-accounting-measures
    Shenanigan No. 7:
    Shifting Future Expenses to Current Period

    WarningSigns

    1. Improperly writing off assets in thecurrent period to avoid expenses in a


    future period.
    2. Improperly recording charges to establish, reserves used to reduce future
    expenses.
    3. Large write-offs accompanying the arrival of a new CEO.
    Be alert on unusual Write-offs:
    1. Account receivables
    2. Good will
    Special Case
    Study : Duniatex &
    Group Hanson
    International
    Special Case Study:
    Duniatex Group

    Source: https://finansial.bisnis.com/read/20191014/90/1158622/digugat-pkpu-duniatex-dapat-perlindungan-
    hukum-luar-negeri
    Special Case Study:
    Duniatex Group

    Source: https://finansial.bisnis.com/read/20190724/90/1128362/fitch-ratings-kembali-pangkas-peringkat-surat-utang-duniatex
    Special Case Study:
    Duniatex Group

    Source: https://www.cnbcindonesia.com/market/20190731110121-17-88815/pinjaman-lpei-ke-duniatex-tembus-rp-3-t-ini-sebarannya
    Special Case Study:
    Hanson International

    Source: https://
    www.cnbcindonesia.com/market/20191030184444-17-111486/himpun-dan
    a-triliunan-hanson-milik-bentjok-dihukum-ojk
    Special Case Study:
    Hanson International

    Source: https://katadata.co.id/berita/2019/11/08/diduga-himpun-dana-ilegal-hanson-janji-cicil-kembalikan-uang-investor
    Thank You

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