Chapter 16

Seeing How Some Companies Lie, Cheat, and Steal Their Way to the Top

In This Chapter

arrow Understanding how companies can manipulate accounting numbers

arrow Seeing how investment bankers can identify accounting problems

arrow Identifying potential accounting red flags

arrow Understanding the importance of accounting assumptions

arrow Developing a skeptical nature

The lifeblood of investment banking is the analysis of financial statements like the ones we introduce in Chapter 7 (for example, the income statement, balance sheet, statement of cash flows, and proxy statement). Even though each of these statements is prepared using the same rules — generally accepted accounting principles (GAAP) — and the financial statements are audited by independent accounting firms, like Alice in Wonderland, things aren't always as they seem. A successful investment banker is part financial analyst and part detective. An inquisitive and skeptical nature is essential.

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