https://abs.twimg.com/emoji/v2/... draggable="false" alt="👺" title="Japanischer Kobold" aria-label="Emoji: Japanischer Kobold">12 Ways to Spot a Lying CFOhttps://abs.twimg.com/emoji/v2/... draggable="false" alt="👺" title="Japanischer Kobold" aria-label="Emoji: Japanischer Kobold">
https://abs.twimg.com/emoji/v2/... draggable="false" alt="🤝" title="Handschlag" aria-label="Emoji: Handschlag">collaboration w/ @goodalexander

Stocks move on earnings, so execs will manipulate earnings. How can u spot their accounting gimmicks ahead of time?

Here’s a rundown of top shenanigans execs use(d) to cook their books. Case studies included.
https://abs.twimg.com/emoji/v2/... draggable="false" alt="👇" title="Rückhand Zeigefinger nach unten" aria-label="Emoji: Rückhand Zeigefinger nach unten">

1/ Using SPVs to hide bad debts

case: Enron created multiple SPVs, then gave them $ENRN stock while the SPVs gave back case. The SPVs then used Enron stock to hedge assets on Enron& #39;s balance sheet.
https://abs.twimg.com/emoji/v2/... draggable="false" alt="➡️" title="Pfeil nach rechts" aria-label="Emoji: Pfeil nach rechts"> Enron got to reduce write-offs & report “improved” debt-to-equity.

2/ Reporting bogus revenue

case: In 2008 Lehman Bros “sold” $50B of https://abs.twimg.com/emoji/v2/... draggable="false" alt="💩" title="Dreckshaufen" aria-label="Emoji: Dreckshaufen"> garbage loans to Cayman Island banks under the promise to buy them back after the fiscal/quarter ends.
https://abs.twimg.com/emoji/v2/... draggable="false" alt="➡️" title="Pfeil nach rechts" aria-label="Emoji: Pfeil nach rechts"> This created the impression to wall street that Lehman had $50B more cash than it actually did.

3/ Round-tripping
(when 2 companies buy/sell repeatedly to inflate sales)

case i: Valeant sold Philidor (which it had the option to buy) inflated shipments of a toenail fungus drughttps://abs.twimg.com/emoji/v2/... draggable="false" alt="🍄" title="Pilz" aria-label="Emoji: Pilz">
case ii: Dynegy& #39;s energy trading biz pre-arranging many buy-sells w/ an ally at designated price

4/ Recording revenues too soon
GAAP says revenue is recognized when a good/service is delivered, not on cash payment/upfront.

case: Xerox "accelerated" $3B in service fees, boosting EBIT by $1.5B.
https://abs.twimg.com/emoji/v2/... draggable="false" alt="➡️" title="Pfeil nach rechts" aria-label="Emoji: Pfeil nach rechts"> Top execs rewarded themselves $35M in RSUs for hitting earnings targets.

5/ “Mucking” w/ depreciation to understate expenses

case: literal muck-handler https://abs.twimg.com/emoji/v2/... draggable="false" alt="💩" title="Dreckshaufen" aria-label="Emoji: Dreckshaufen">https://abs.twimg.com/emoji/v2/... draggable="false" alt="💩" title="Dreckshaufen" aria-label="Emoji: Dreckshaufen">Waste Management Inc. avoided depreciation expenses by inflating salvage value & extending the useful lives of its garbage trucks.

6/ Recording expenses too late
GAAP says expenses are recognized when incurred, not when paid in cash.

case: Nut-seller Diamond wanted to acq Pringles from P&G w/ stock. DMND had to boost its share price.
https://abs.twimg.com/emoji/v2/... draggable="false" alt="➡️" title="Pfeil nach rechts" aria-label="Emoji: Pfeil nach rechts">Screws walnut growers by delaying payments to offset other FY& #39;11 costs.

7/ Booking opex as capex

case: WorldCom used its cash flows statement to hide expenses by marking operating costs, which should have been opex, as capex.
https://abs.twimg.com/emoji/v2/... draggable="false" alt="➡️" title="Pfeil nach rechts" aria-label="Emoji: Pfeil nach rechts">WorldCom inflated cash flow by $3.8 billion and posted quarters of positive performance when it really lost money.

8/ Channel stuffing
when a company ships customers excess goods that were not ordered to temporarily inflate accounts receivable

case: Krispy Kreme allegedly sent franchises 2x usual shipments at the end of financial quarters so the company could meet Wall Street forecasts

9/ Boosting income with 1-time gains
This one not illegal.

case: At quarter ends, Lehman Bros sometimes used “repo 105” an accounting trick that defines a short term loan as a sale.
https://abs.twimg.com/emoji/v2/... draggable="false" alt="➡️" title="Pfeil nach rechts" aria-label="Emoji: Pfeil nach rechts">Cash from sales gave the appearance of lowered reported liabilities.

10/ "Big baths"
Also not illegal.

When a new exec steps in, s/he may write off all losses possible to blame previous management. This makes the company look worse than it is, giving the new exec a low starting bar on which to build future cred

11/ Hiding losses in acquisitions:
I-bankers charge stupidly high fees… how can CEOs use that to their advantage?
https://abs.twimg.com/emoji/v2/... draggable="false" alt="🤔" title="Denkendes Gesicht" aria-label="Emoji: Denkendes Gesicht">"those https://abs.twimg.com/emoji/v2/... draggable="false" alt="👠" title="High Heels" aria-label="Emoji: High Heels">https://abs.twimg.com/emoji/v2/... draggable="false" alt="👜" title="Handtasche" aria-label="Emoji: Handtasche"> for my wife last quarter… advisory expense!"

ex: Tech giant Olympus hid losses on securities investments for years under the cover of acquisitions.

12/ Cookie jar reserves
When execs hide income in order to report them in a future quarter when performance needs a boost

case: Pre-2002 Dell hid undisclosed payments from Intel... between 2002-2006 it dipped into the jar every quarter to cover shortfalls in operating results.