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The Financial Numbers Game: Detecting Creative Accounting Practices

ISBN: 978-0-470-49531-5
408 pages
March 2011
The Financial Numbers Game: Detecting Creative Accounting Practices (0470495316) cover image
Praise for The Financial Numbers Game

"So much for the notion 'those who can, do-those who can't, teach.' Mulford and Comiskey function successfully both as college professors and real-world financial mercenaries. These guys know their balance sheets. The Financial Numbers Game should serve as a survival manual for both serious individual investors and industry pros who study and act upon the interpretation of financial statements. This unique blend of battle-earned scholarship and quality writing is a must-read/must-have reference for serious financial statement analysis."
-Bob Acker, Editor/Publisher, The Acker Letter

"Wall Street's unforgiving attention to quarterly earnings presents ever-increasing pressure on CFOs to manage earnings and expectations. The Financial Numbers Game provides a clear explanation of the ways in which management can stretch, bend, and break accounting rules to reach the desired bottom line. This arms the serious investor or financial analyst with the healthy skepticism required to drive beyond reported results to a clear understanding of a firm's true performance."
-Mark Hurley, Managing Director, Training and Development Global Corporate and Investment Banking, Bank of America

"After reading The Financial Numbers Game, I feel as though I've taken a master's course in financial statement analysis. Mulford and Comiskey's latest book should be required reading for anyone who is serious about fundamentally analyzing stocks."
-Harry Domash, Investing Columnist, San Francisco Chronicle and Publisher, Winning Investing

The Financial Numbers Game identifies the steps businesses may take to misstate financial performance and helps its readers to identify those situations where reported results may not be what they seem.
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1 Financial Numbers Game.

Rewards of the Game.

Classifying Creative Accounting Practices.

Plan of This Book.

Summary.

Glossary.

Notes.

2 How the Game Is Played.

Accounting Policy Choice and Application.

Fraudulent Financial Reporting.

Cleaning Up after the Game.

Clarifying Terminology.

Summary.

Glossary.

Notes.

3 Earnings Management: A Closer Look.

What Is Earnings Management?

Incentives and Conditions for Earnings Management.

Earnings Management Techniques.

Evidence of Earnings Management.

Effectiveness of Earnings Management.

Is Earnings Management Good or Bad?

Summary.

Glossary.

Notes.

4 The SEC Responds.

The Chairman’s Speech.

The Action Plan.

Subsequent Developments.

Enforcing the Securities Laws.

Summary.

Glossary.

Notes.

5 Financial Professionals Speak Out.

Survey of Financial Professionals.

Survey Results.

Summary.

Glossary.

Notes.

6 Recognizing Premature or Fictitious Revenue.

Is It Premature or Fictitious Revenue?

When Should Revenue Be Recognized?

Detecting Premature or Fictitious Revenue.

Checklist to Detect Premature or Fictitious Revenue.

Summary.

Glossary.

Notes.

7 Aggressive Capitalization and Extended Amortization Policies.

Cost Capitalization.

Detecting Aggressive Cost Capitalization Policies.

Amortizing Capitalized Costs.

Detecting Extended Amortization Periods.

Checklist to Detect Aggressive Capitalization and Extended Amortization Policies.

Summary.

Glossary.

Notes.

8 Misreported Assets and Liabilities.

Link with Reported Earnings.

Boosting Shareholders’ Equity.

Overvalued Assets.

Undervalued Liabilities.

Checklist to Detect Misreported Assets and Liabilities.

Summary.

Glossary.

Notes.

9 Getting Creative with the Income Statement: Classification and Disclosure.

Current Income Statement Requirements and Practices.

Reporting Comprehensive Income.

Creative Income Statement Classifications.

Creativity with Other Aspects of the Income Statement.

Summary.

Glossary.

Notes.

10 Getting Creative with the Income Statement: Pro-Forma Measures of Earnings.

Recasting the Bottom Line: Pro-Forma Earnings Measures.

Summary.

Glossary.

Notes.

11 Problems with Cash Flow Reporting.

Reporting Cash Flow.

Problems with Reported Operating Cash Flow.

Using Operating Cash Flow to Detect Creative Accounting Practices.

Checklist for Using Operating Cash Flow to Detect Creative Accounting Practices.

Summary.

Glossary.

Notes.

Subject Index.

Company Index.

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Charles W. Mulford is the Invesco Chair and Professor of Accounting and Eugene E. Comiskey is the Callaway Chair and Professor of Accounting in the DuPree College of Management at the Georgia Institute of Technology in Atlanta. Both professors have doctorates in accounting and are professionally qualified as certified public accountants. In addition to their work at Georgia Tech, they actively consult with lenders at commercial banks in the United States and abroad. Professors Mulford and Comiskey have published articles on financial reporting and analysis issues in leading academic journals in the accounting and finance fields as well as in such widely read professional journals as the Commercial Lending Review and the Financial Analysts’ Journal. This is the authors’ third book. Their first, Financial Warnings, published in 1996, identifies the warning signs of future corporate earnings difficulties. Their second, Guide to Financial Reporting and Analysis, seeks to simplify the complexities of current-day generally accepted accounting principles as an aid to practicing financial analysts and other users of financial statements.
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  • Updated with an extensive new Forward
  • Now available as a new lower-priced paperback!
  • Describes accounting problems that are so rampant in the business world today.
  • Examples of aggressive and fraudulent revenue recognition and how to detect it.
  • Tells students what to look for as signs of earnings manipulation based on interviews of financial analysts and lenders.
  • Checklists that provides a student-ready instrument for detecting accounting misdeeds.
  • Identifies the steps companies take to misstate financial performance and show how to detect misleading financial statements, including actual company examples.
  • Shows how early detection of misleading financial reports can lead to corrective action and opportunity to avoid negative earnings surprises and share-price declines.
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