Financial Shenanigans, Fourth Edition: How to Detect Accounting Gimmicks and Fraud in Financial Reports

I regret not reading this book sooner but am immensely happy with my decision to finally take the plunge. Accounting is such a technical field that it's easy to get lost in the weeds, but Howard Schilit does a fantastic job of keeping you grounded in the aerial view while delving into detail only when it's important. I have done public company analysis for many years (including some of them as a professional financial analyst/investor) and I decided to flag each page of the book where I learned either something entirely new or a new way of looking at the eccentricities of the financial statements. The value of this book is simple: I ran out of flags because I tagged so many pages.What I found helpful (and wish the author had included more, despite the fact that every chapter had multiple) were the direct quotes from corporate filings (usually the 10-Q/K) and parsing out what words or word changes matter and why. When I read annual reports now, I am much more sensitive to slight variations in descriptions of policies, sales, or even business between companies.If I had taken more than introductory accounting courses, I don't know that this would have been so helpful. But I didn't take those accounting courses and this was a great primer in why it's important to understand the nuance and mechanics of the financial statements. The timely examples, the parsing of corporate communications, and the great structure (where early examples in the book are used later on to illustrate more complex or well-hidden frauds) make the book a good read for someone with enough education to be literate in financial statements but not enough to forensically analyse them.Needless to say I recommend the book. I already gave a copy to a coworker -- who was similarly impressed.

This book is probably of greatest value for investors in public market equities and for auditors of such companies, but it's also of use to investors in private companies and it's sufficiently well written that much of it will entertain fans of books about white collar crime and similar malfeasance.The authors explain what they're going to explain, then they explain it, then they explain what they just explained. And they use a lot of examples, mostly from the period around Y2K I think. At the end are three more in-depth summaries of companies that thrived under aggressive accounting practices before imploding. My only complaint is that I wish that section were a lot longer and covered a longer time period.

Howard Schilit, Jeremy Perler, and Yoni Engelhart subdivide their comprehensive examination of financial shenanigans into four parts:1. Earnings manipulation shenanigans;2. Cash flow shenanigans (an eye-opener);3. Key metrics shenanigans;4. Acquisition accounting shenanigans.To their credit, the authors clearly demonstrate that financial shenanigans are much more widespread that a casual observer of the corporate world would believe. Unfortunately, financial shenanigans are not limited to infamous bad apples such as Enron, Lehman Brothers, Tyco, Valeant Pharmaceuticals, and WorldCom, to name a few. The management teams of well-known companies such as Dell Computer, GE, Home Depot, Li & Fung, Netflix, Softbank, and Thomson Reuters have also succumbed to the temptation of embellishing their financial performance at the expense of their investors.The overall message of Messrs. Schilit, Perler, and Engelhart is that investors should assume that the urge to exaggerate the positive and hide the negative will never disappear. And where temptation exists, shenanigans often follow.For these reasons, investors are strongly encouraged to apply the ten tenets of the forensic mindset to detect accounting gimmicks and fraud in financial statements.In summary, the book under review is a must read for anyone investing in individual securities.

This book was suggested by my accounting professor from my MBA program a few years ago. The updated version has some new examples (e.g. Satyam from India) worth noting. Any student who is familiar with financial statements will find this a quick read. I did not give this book a 5-star rating only because the content gets repetitive after a few pages. In future editions, the authors could try to condense the material to make it feel more scholarly.

La creación de valor no es hacer contabilidad creativa, es aumentar la caja que genera un negocio y reinvertirla a una tasa mayor que pague el costo de utilizar este recurso. En este libro los autores no enseñan como detectar las principales trampas contables que pueden utilizar los gerentes para engañarnos sobre el desempeño de un negocio.

I have been practicing law in the area of financial fraud for twenty years, and have used every edition of Financial Shenanigans to help identify and describe the accounting gimmicks and cheats that keep showing up in one big fraud after another. The authors explain that all of the major accounting frauds you ever heard of involve one or more of these shenanigans, or some variation on these shenanigans, and that insight is key to recognizing and sorting them out. This is far and away the best source available for a real understanding of how these financial frauds actually work, and with that understanding to know where and how to look for the evidence.

Likes-Written somewhat informally-well organized approach to laying out accounting techniques-great clipping of sources (10-k disclaimers, financial statements)-short bookDislikes-wish the author would have provided further book recommendations in the "never stop learning" section :)