Analysis of Financial Statements Manipulations to show higher profits/assets:- Total Assets = Fixed Asset + Current Asset OR Owned Funds +LTL + ______ ? ============================== == Capital Employed = Owned Funds + ____ OR Fixed Assets + _____ - _______ ?

Analysis of Financial Statements-Manipulations to show higher profits/assets:- Net Worth = Capital & Reserves – Intangible assets. OR Net Worth = Capital & Reserves – Intangible assets. OR Fixed Assets + _________ - ____-______ Fixed Assets + _________ - ____-______ ========================== ===== ========================== ===== Working Capital = Current assets – Current Liabilities OR Working Capital = Current assets – Current Liabilities OR Owned Funds + _________ - _________ Owned Funds + _________ - _________

Analysis of Financial Statements-Manipulations to show higher profits/assets:- Relationships Relationships P & L accountBalance Sheet P & L accountBalance Sheet PBIT(ROA)Total Asset PBIT(ROA)Total Asset PBT(ROCE)Capital employed PBT(ROCE)Capital employed PAT(ROE)Net Worth PAT(ROE)Net Worth

Analysis of Financial Statements-Manipulations to show higher profits/assets:- Off Balance Sheet accounting & manipulations- moving debt to a SPE. Off Balance Sheet accounting & manipulations- moving debt to a SPE. Synthetic Leases to SPE Synthetic Leases to SPE Contingent liability not highlighted. Contingent liability not highlighted. Expense manipulation-unplanned exps. Expense manipulation-unplanned exps. Earnings Goal deterrent- excess exps. Earnings Goal deterrent- excess exps. Delaying expenses- revenue Vs. Capital Delaying expenses- revenue Vs. Capital

Analysis of Financial Statements-Manipulations to show higher profits/assets:- Premature revenue booking:- Premature revenue booking:- Recording sales upon getting orders before shipment. Recording sales upon getting orders before shipment. Recording revenues from contingency sales Recording revenues from contingency sales Overstating revenues by wrong estimate of % of work completed. Overstating revenues by wrong estimate of % of work completed. Recording revenues by shipping products not ordered or by shipping defectives at full price. Recording revenues by shipping products not ordered or by shipping defectives at full price. Front loading “future exps”-prepayments to increase EPS on acquisition. Front loading “future exps”-prepayments to increase EPS on acquisition.

Analysis of Financial Statements-Manipulations to show higher profits/assets:- Non-recurring exps. And pension manipulations:- Non-recurring exps. And pension manipulations:- Over budgeting for non-recurring exps. Over budgeting for non-recurring exps. Pension liability not adequately provided by projecting returns from equity investments. Pension liability not adequately provided by projecting returns from equity investments.

Analysis of Financial Statements-Manipulations to show higher profits/assets:- ENRON- ENRON- Convinced federal regulators to agree to accounting on “ Mark to market basis”- to show income from long term energy contracts as current income. Convinced federal regulators to agree to accounting on “ Mark to market basis”- to show income from long term energy contracts as current income. Created SPE to cover their losses but SPE backed by only Enron’s equity. Created SPE to cover their losses but SPE backed by only Enron’s equity. Stocks fell from $ 86 to just 30 cents !! Stocks fell from $ 86 to just 30 cents !!

Analysis of Financial Statements-Manipulations to show higher profits/assets:- WORLDCOM- WORLDCOM- Frenzy of acquisitions in 1990s.Craze for high margins- Acquired MCI Frenzy of acquisitions in 1990s.Craze for high margins- Acquired MCI 1999 revenue growth slow- reduced reserve and converted to current revenue revenue growth slow- reduced reserve and converted to current revenue. In 2000, classified operating exps. As Capital investments. In 2000, classified operating exps. As Capital investments. $ 500 ml. as computer exps. Not supported by documents. $ 500 ml. as computer exps. Not supported by documents. Scam unraveled by Internal audit and inspection of MCI Scam unraveled by Internal audit and inspection of MCI Co. admitted inflating profit by $ 3.8 bl. And filed bankruptcy. Co. admitted inflating profit by $ 3.8 bl. And filed bankruptcy.

Analysis of Financial Statements-Manipulations to show higher profits/assets:- AOL- AOL- Charged with booking revenue exps. ( advt) as capital exp. And showing enhanced profits. Charged with booking revenue exps. ( advt) as capital exp. And showing enhanced profits. TYCO INTERNATIONAL- - Engaged in electrical and electronic components - Interest free loans to key personnel. - Extravagant spending- $ 6000 on curtains, $ 2000 on trash cans and $ 2mil. Dollars on the birthday party of CEOs wife.! - Loan forgiveness program.!! - SEC enquiry after report by an analyst. And found $ 20 ml. to director as finder’s fee!! - The co. still survives though earlier Board dissolved.

Analysis of Financial Statements-Manipulations to show higher profits/assets:- Other areas for manipulation:- Other areas for manipulation:- Trade Debtors. Trade Debtors. Non-moving stocks as inventory. Non-moving stocks as inventory. Contra debtors/creditors. Contra debtors/creditors. Over invoicing Over invoicing Understatement of risks on derivative instruments. Understatement of risks on derivative instruments. Other debtors/ Other creditors Other debtors/ Other creditors Notional expenditure. Notional expenditure.