- Hardcover: 336 pages
- Publisher: McGraw Hill Education; 3 edition (16 June 2010)
- Language: English
- ISBN-10: 0071703071
- ISBN-13: 978-0071703079
- Product Dimensions: 15 x 2.5 x 24.1 cm
- Customer Reviews: 74 customer ratings
Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports, Third Edition Hardcover – 16 June 2010
About the Author
Jeremy Perler, CFA, CPA, is the Director of Research at Schilit Forensics and co-author of Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports (3rd edition, 2010). Previously, Jeremy served as the in-house Forensic Accounting Analyst for Coatue Management, a long/short equity hedge fund; Director of Research for CFRA; and auditor for PricewaterhouseCoopers. In addition, Mr. Perler serves on the FASB's Financial Accounting Standards Advisory Council (FASAC) as a representative of the Investor Community. Jeremy holds a Master of Accounting and a BBA from the University of Michigan Ross School of Business.
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Top international reviews
Chock full of relevant examples for each trick
Broad range of methods examined
Gives rules for understanding new tricks
Essential for anyone who wants to properly analyse companies
I did learn more on reading financial reports and I did learn some specifics to watch for on publicly available reports that have helped me improve my investing so overall the book, as an investment, has already paid for itself many times over. Well written in layman's terms without seeming agenda and without hyperbole. I have no problem recommending the book to others.
You will find lots of case studies of questionable accounting methods, practices, and shenanigans inside. I bought the book because I wanted to increase my skills of spotting when the management of particular company is trying to manipulate the company's financial reports. When I read it was an eye opener for me. I was just not aware of how many creative tricks are out there.
The book provides with the tools of spotting the possible gimmicks of the business world. If you are serious about business you will find the book useful as I am.
I have a pretty strong accounting background - once passed CPA exam, but I didn't care much for the book. Bottom line is read the footnotes! Really?? I was hoping for some quick guide lines. There is one well known easy quick indicator of accounting gamesmanship, which is "Do the earnings exceed the cash flow from operations (CFO).". That will not identify 100% of games being played and neither will 100% of those failing the simple test be playing an accounting game. For example, a fast growing company could have less in CFO than earnings legitimately. However it is a good indicator. I was hoping for other quick easy indicators. Some of the examples of what was in the foot notes of fraudulent companies, would not have been clear to someone, even with a good grasp of English and accounting, no matter how many times you read. As Jim Chanos says, if you don't understand it after reading it 3 times, it is written so that you won't understand it.
Second thing is that I paid too much for this book. I bought the 3rd Edition for $57 and change, while the list price was $38.00. Was not aware that there was a more recent 4th Edition for a little less than half what I paid. Will be more careful in the future, it is this type of thing that may lead to my eliminating my Amazon Prime membership.
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.
The book hits hard on the many changes in GAAP accounting and how masterful accountants trick business analysts with gimmickry.
In total there are:
7 Earnings manipulation shenanigans – These run the gamut from simple revenue recognition discrepancies to very disingenuous sales processes that allow a company to record revenue before a sale is even made. The author boosts this section of the book with high-quality examples from leading public companies including Sunbeam and IBM. You won’t believe the extent to which high-profile companies report earnings beats with fictitious accounting numbers.
4 Cash flow shenanigans – The cash flow statement is one of the most difficult to engineer – a company produces cash, or it doesn’t. However, accounting teams still have four methods to boost cash flows when a business would otherwise produce very little free cash. This section primarily focuses on how businesses shift financing cash flows (money from stock and bond sales) into operating income. Also, this section uncovers how acquisitions and disposition can be used to make cash flow look stronger than it really is.
3 Key metric shenanigans – This section targets the key metrics used by executives when they talk about their business and brand. In particular, it examines how corporate brass can turn attention away from struggling businesses with non-GAAP measures like “same store sales” or “average revenue per user.” This section curiously touches on the subject of “bookings,” a metric used by recent IPOs like Groupon to hide their true revenue per user metrics. This is a must-read section for people who tune into corporate conference calls or who read conference call presentations.
This book will also help anyone who:
Invests in individual stocks – Particularly in large cap companies, where the sheer complexity of one or many businesses can hide the true operating performance of a company, this book gives investors a way to “fact” check the going-ons of a company from quarter to quarter. If you invest in individual stocks, this is a must-read book.
Values stocks on cash flows – The cash flow shenanigans are absolutely incredible. Anyone who uses a discounted cash flow analysis to value companies will appreciate the wisdom in Financial Shenanigans. The cash flow statement is not as impenetrable as investors seem to believe.
Wants to learn more about financial history – The book takes you through the evolution of corporate scams and accounting frauds. The author makes frequent references to massive scams like Enron and Worldcom, and even goes back in time to show you how investors could have caught onto the false accounting that made these companies the biggest frauds in Wall Street history.
What I like most about the book is that it doesn’t just expose the gimmicks that businesses use to fake their financials. Instead, the authors go to great lengths to give examples, and then explain how you can fact check the accounting of any public company.
All in all, at little more than $18 for the hardcover, this is a must-own book for any serious individual stock investor. It’s easy to read, easy to follow (there are literally hundreds of examples), and easy to apply what you learn to companies you watch immediately after reading.