Accounts Demystified, 6th Edition

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Self-serving presentation

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Creative accounting

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Why bother?

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Summary

We saw earlier that, based on the management’s criteria, Wingate’s finan-

cial performance looked very satisfactory. We also saw that, based on the

right criteria, the reality was very different. I hope that neither of you

would consider investing money in Wingate under the current manage-

ment and strategy.

Exposing the reality was not difficult in Wingate’s case, once we knew

how to go about it. We were helped by the fact that Wingate’s accounts

seemed to reflect the facts pretty fairly. Unfortunately, many listed com-

panies do whatever they can to make themselves look good in the eyes

of the analysts and investors. The ways that this can be done fall into

two categories:

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self-serving presentation

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creative accounting.

By the latter, I’m talking about stretching, or even breaking, the rules of

accounting to report figures that suit the company. Over the last 10 years,

there have been many new rules introduced to stop creative accounting.

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Tricks of the trade