Program Outline

Bring a laptop running Excel, this is a hands-on course!

Day 1
On the first day of the program, you will examine in the interrelationship among the three key financial statements; Income Statement, Balance Sheet and Statement of Cash Flows. You will discover how discrepancies and inconsistencies in financial statements can be rooted out and identified, even when they are meshed throughout these key financial statements and deeply and intently hidden.

A. Understanding Forms 10-K and 10-Q
    1. Audited versus unaudited
    2. MD&A
    3. Biggest Red Flags
    4. Walkthrough
B. Fundamental Accounting Principals
    1. Sources and Uses of Cash
    2. Book versus Market Value
    3. Cash versus Accrual
    4. Revenue Recognition
    5. Capitalized versus Expensed
C. Voodoo Accounting: Examine Critical Line Items And Footnotes
    1. Operating Cash Flow (EBIT, EBITDA, Capex, Working Capital, Etc.)
    2. Cash And Debt
    3. Operating Leases
    4. Capital Leases
    5. Restructuring Charges
    6. Unusual Items
    7. Accruals
    8. Shares And Options
    9. Commitments and Contingencies
D. Accounting Irregularities
    1. Bristol-Meyers Squibb
    2. Computer Associates
    3. Waste Management, Inc.
    4. Parmalat
    5. Nortel
    6. Allied Crude Vegetable Oil – The Salad Oil Scandal
    7. Sunbeam
    8. AOL/Time Warner
    9. Kodak
    10. CMS/Duke Energy/El Paso
    11. Peregrine Systems
    12. Enron
    13. Royal Ahold
    14. WorldCom
    15. Tyco
E. Tools for Forensic Analysis
    1. Common Sizing
    2. Sales as a driver
    3. Diseconomies of Scale
    4. Profitability: Gross, EBIT, and Profit Margins
    5. Efficiency
    6. Stale Assets
    7. Poison Assets
    8. Leverage
    9. Hidden Debt
    10. Liquidity

Day 2: To Catch a Thief: Accounting Red Flags, and the 25 Common Accounting Misdirections

Next you will directly examine the most common places where deceit and misdirection are most prevalent in financial reporting. Lack of information is as dangerous as the presence of misinformation. You will learn to identify what essential information may not be presented or represented in a financial document. You’ll learn the accounting tricks and the most common ways that financial reporting can be manipulated to present a far different financial picture than the one that in fact truly exists. You will learn to catch a thief before the thief catches you.

A. Common Accounting Manipulations Used To Distort Earnings And Cash Flow
B. Manipulation of Revenue
    1. Premature recognition of revenues
    2. Using a gross versus net sales basis
    3. Vendor financing
    4. Cookie Jar Accounting
    5. Allowance for doubtful accounts
    6. Price versus volume changes
    7. Real versus nominal growth
    8. Round Trip Trades
C. Manipulation of COGS
    1. Cost-flow assumptions for inventory
    2. Base LIFO layer liquidation
    3. Fulfillment Costs
    4. Loss recognitions and write down of inventories
D. Manipulation of Operating Expenses
    1. Discretionary expenses
    2. Depreciation
    3. Asset Impairment
    4. Big bath restructuring charges
    5. Reserves
    6. In-process R&D
E. Manipulation of Non-Operating Items
    1. Gains/losses from the sale of assets
    2. Interest income
    3. Equity income
    4. Income taxes
    5. Unusual items
    6. Discontinued items
    7. Accounting changes
    8. Extraordinary items
    9. Material changes in the # of shares outstanding
F. Case Study: Clarkson Lumber Case: Earnings Quality, Profitability ≠ Liquidity
G. Wrap up and Discussion

Group Exercise: Rip through a 10-K; Find potential fraud and misdirection

Then, 'Lehman Brothers: A Case Study' - Product marketing strategy exposed to risk