Chapter 5
Cooked Books: Finding Financial Statement Fraud
In This Chapter
Understanding the basics of financial statement analysis
Identifying motives behind financial statement frauds
Realizing how such frauds are committed
Playing sleuth: Finding the fraud
A company records all its business transactions, culminating in the preparation of financial reports that provide information about the company’s financial position and performance. Financial reports consist of the following: principal statements (the income statement, balance sheet, statement of cash flows, and statement of changes in owners’ equity), notes to these statements, and management discussion and analysis (MD&A) of results. Financial statements provide a snapshot of the business at a given point in time: the results of its financial performance and its generation of cash flows during a given period.
Auditors conduct financial statement analysis, which involves evaluating a company’s financial position and its ability to generate profits and cash flow both now and in the future. Such analysis may also include valuing ...
