How to Detect Earnings Management

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Companies sometimes manipulate the financial statements, whether through earnings management or outright fraud. Here are some ways to determine whether a company has manipulated its financial statements: • (1) ratio analysis • (2) trend analysis • (3) industry comparison • (4) review critical estimates or assumptions • (5) look for changes in accounting methods or estimates • (6) look for changes in credit policy • (7) look for large deviations between net income and operating cash flow • (8) look for an inventory build-up • (9) check for abnormally high shipments/sales right before the end of the period • (10) compare sales figures to sales/shipment data from a third party • (11) examine one-time charges • (12) look for reversals of charges from prior periods • (13) note whether the company is lending money to customers to buy its product • (14) identify whether routine costs are being capitalized • (15) identify off-balance sheet arrangements • (16) identify related-party transactions • — • Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world. • — • SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS: • • A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING • • A 44-PAGE GUIDE TO U.S. TAXATION • • A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS • • MANY MORE FREE PDF GUIDES AND SPREADSHEETS • http://eepurl.com/dIaa5z • — • SUPPORT EDSPIRA ON PATREON • * / prof_mclaughlin • — • GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT • https://edspira.thinkific.com • — • LISTEN TO THE SCHEME PODCAST • Apple Podcasts: https://podcasts.apple.com/us/podcast... • Spotify: https://open.spotify.com/show/4WaNTqV... • Website: https://www.edspira.com/podcast-2/ • — • GET TAX TIPS ON TIKTOK • / prof_mclaughlin • — • ACCESS INDEX OF VIDEOS • https://www.edspira.com/index • — • CONNECT WITH EDSPIRA • Facebook: / edspira • Instagram: / edspiradotcom • LinkedIn: / edspira • — • CONNECT WITH MICHAEL • Twitter: / prof_mclaughlin • LinkedIn: / prof-michael-mclaughlin • — • ABOUT EDSPIRA AND ITS CREATOR • https://www.edspira.com/about/ • https://michaelmclaughlin.com

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