Homework 3.41.71
Book: Forensic and Investigative Accounting
Please answer the questions listed below and submit in a word document.
Exercise 41. What are Howard M. Schilits seven financial shenanigans?
Exercise 71. Go to the FBI internet site or search other sources and prepare a report as to the fraudulent activities in these companies. How did the people pull off the fraud?
a. Quest Communication.
b. AmeriFunding.
Exercise 41
How can an investor avoid the identity presence of these earning manipulations and avoid making poor investment decisions? Howard M. Schilits suggest seven categories of financial shenanigans that are crucial to understanding to mitigate these tricks. The seven categories of financial shenanigans recommended by Schilits include recording revenues too soon, recording bogus revenues, boosting income using one-time or unsustainable activities, and shifting current expenses to a later period first four (Perler & Engelhart, 2018). The other three categories of the same include employing different techniques to hide expenses or losses, shifting current income to a later period, and shifting future costs to the current period (https://www.coursehero.com/file/34890716/ACCT6010Unit05-PPT-1ppt/
rsity, 2018 1. 2. 3. 4. 5. 6. 7. 5-35 Recording Revenue Too Soon Recording Bogus Revenue Boosting Income Using One-Time or Unsustainable Activities Shifting Expenses to a Later Period Employing OtherTechniques to Hide Expenses/Losses Shifting Current Income to a Later Period Shifting FutureExpensesto the Current PeriodTennessee Technological University, 2018 1. Material obligations 2. 3. 4. 5-36 remain to be met. Contract work has not been completed. Buyer has not accepted the product/service. Buyers payment
.
Schilits suggest that an organization can employ different types of techniques in recording revenue too soon (one of the categories of financial shenanigans) (Perler & Engelhart, 2018). These include techniques such as recording revenue before a contract materialize, recording excess revenue way far after a contract has materialized, recording revenue before a purchase is accepted, and recording revenue when the buyer payment is unclear. All these practices are classified as financial shenanigans, and they are records of revenue that has not been earned yet. Under the recording of bogus revenue, various techniques include recording revenue from non-economic transactions, recording revenue from unreasonable processes, recording revenue from at inflated rate, and stating revenue from the transactions that do not have any earnings. All the other categories of financial shenanigans, as proposed by Schilit, also include a list of techniques through which a corporation may manipulate its financial performance/position (Perler & Engelhart, 2018). For example, the boosting of income using one-time or unsustainable activities include techniques(http://csinvesting.org/wp-content/uploads/2012/06/financial_shenanigans.pdf
shenanigans may likely have fueled the increase. ENRON: Financial Shenanigans Identified Earnings Manipulation Shenanigans Recording Revenue Too Soon Recording Bogus Revenue Boosting Income Using One-Time or Unsustainable Activities Employing Other Techniques to HideExpenses or Losses Cash Flow Shenanigans Shifting Financing Cash Inflows to the Operating Section Shifting Normal Operating Cash Outflows to the Investing Section Inflating Op
such as magnifying earning using on-time events and heightening revenues through manipulative classifications.
Exercise 71
With this in mind so far, how did Qwest Communication International and AmeriFunding Corporation pull off their fraud? Which techniques based on Howard M Schilit’s seven financial Shenanigans did they use? According to U.S. Security and Exchanges Commission (n.d.) The Securities and Exchange Commission sued Qwest Communication International Inc for different financial fraud. First, the company used manipulative revenue recorded, which misleads investors to believe that it was doing well. U.S. Security and Exchanges Commission (n.d.) suggests between the second quarter of the company’ financial report that ended 30th July 1999 and the first quarter that ended on 31st March 2002; the company engaged in multiple financial manipulations. As a result, misleading the public investor to believe that it was doing well in its earning and growth while this was not the case in reality.
Moreover, in its report, the company spuriously claimed to have approximately $3.8 billion in revenues and intentionally excluded a cost of $231 million in its operations (U.S.U.S. Security and Exchanges Commission, n.d.). This practice is among Howard’s financial shenanigans of employing other techniques to hide expenses or loss and shifting current expenses to a later period (https://www.coursehero.com/file/10766614/Acct-551-Spring-2014-Final-Exam-Review-Sheet/
expenses. You should be prepared to discuss: Recording Revenue Too Soon Recording Bogus Revenue Boosting Income Using One-Time or Unsustainable ActivitiesShifting CurrentExpensesto a Later PeriodEmploying Other Techniques to Hide Expenses orLosses Shifting Current Income to a Later Period Shifting Future Expenses to an Earlier Period Cash Flow Tricks Be prepared to identify and explain methods of shifting cash inflows and outflows, inflating cash using acquisitions, disposals and unsu
. In other words, Qwest Communication Corporation used these techniques to artificially inflate its stock and manipulate the public as the best earning growth and potential for future success. U.S. Security and Exchanges Commission (n.d.) adds that the company did not have appropriate internal management and it did not manage its accounting books well. This led to multiple errors such as an overstatement of $56 million revenue in operation service an improper capitalized cost $200 million in design services and an understatement of $850 million in its merger project. This reveals another way through which the company engaged in manipulative financial shenanigans of hiding expenses and losses. The company’s financial manipulative techniques include bogus recording revenues since it records appropriate transactions with excessive revenues. This is much apparent in the sense that the shared selling $55 after the merger with U.S. U.S. West suddenly dropped to $1.11 per share in 2022 when its financial shenanigans started to be realized.
On the other hand, hand the AmeriFunding financial shenanigans mostly involves its executive team and a significant percentage of its employee who designed a manipulative scheme about its financial performance and position. Federal Bureau of Investigation (2013) suggest that according to the evidence presented to the court against Spanier, former owner of American Capital Finance, the company falsely represented its potential to lend money to other organization and individuals. The company intentionally manipulated other corporations and individuals to provide millions of dollars in its stocks. At the same time, in the real case, it did not have any money but used borrowers stock that was promised as collateral to sustain itself. According to the Federal Bureau of Investigation (2013), Spanier collaborated with other executives and employees such as Douglas McClain and James Miceli, which implies that the scheme was a planned financial shenanigan technique for fraudulent activities. The fact that borrower stock was sold despite promising otherwise indicates that this organization was engaged in a false presentation of its financial positions.
Conclusion
Howard M. Schilit’s financial shenanigans include recording revenue soon than expected, recording bogus revenue, developing false revenues, boosting income with one-time earnings, eliminating liabilities, and moving current income (http://www.studymode.com/essays/Creative-Accounting-And-Ethics-1809765.html
gement, earning smoothing, financial engineering and cosmetic accounting (Bokin 2005). The ways that companies usually manipulate their accounts include recording revenues too soon, recording bogus revenues, boosting income with one timegains, shifting expenses and incomeforward and backward, failure to disclose liabilities and changing estimates such as bad debts, litigation costs, capital asset lives, and pension assumptions (Schilit, cited in Davin n.d.). While op
or expense to a future period. These categories of financial shenanigans help investors to identify the possible existence of financial fraud in the financial reporting of a particular corporation. Exercise 41
How can an investor avoid the identity presence of these earning manipulations and avoid making poor investment decisions? Howard M. Schilits suggest seven categories of financial shenanigans that are crucial to understanding to mitigate these tricks. The seven categories of financial shenanigans recommended by Schilits include recording revenues too soon, recording bogus revenues, boosting income using one-time or unsustainable activities, and shifting current expenses to a later period first four (Perler & Engelhart, 2018). The other three categories of the same include employing different techniques to hide expenses or losses, shifting current income to a later period, and shifting future costs to the current period (https://www.coursehero.com/file/34890716/ACCT6010Unit05-PPT-1ppt/
rsity, 2018 1. 2. 3. 4. 5. 6. 7. 5-35 Recording Revenue Too Soon Recording Bogus Revenue Boosting Income Using One-Time or Unsustainable Activities Shifting Expenses to a Later Period Employing OtherTechniques to Hide Expenses/Losses Shifting Current Income to a Later Period Shifting FutureExpensesto the Current PeriodTennessee Technological University, 2018 1. Material obligations 2. 3. 4. 5-36 remain to be met. Contract work has not been completed. Buyer has not accepted the product/service. Buyers payment
.
Schilits suggest that an organization can employ different types of techniques in recording revenue too soon (one of the categories of financial shenanigans) (Perler & Engelhart, 2018). These include techniques such as recording revenue before a contract materialize, recording excess revenue way far after a contract has materialized, recording revenue before a purchase is accepted, and recording revenue when the buyer payment is unclear. All these practices are classified as financial shenanigans, and they are records of revenue that has not been earned yet. Under the recording of bogus revenue, various techniques include recording revenue from non-economic transactions, recording revenue from unreasonable processes, recording revenue from at inflated rate, and stating revenue from the transactions that do not have any earnings. All the other categories of financial shenanigans, as proposed by Schilit, also include a list of techniques through which a corporation may manipulate its financial performance/position (Perler & Engelhart, 2018). For example, the boosting of income using one-time or unsustainable activities include techniques(http://csinvesting.org/wp-content/uploads/2012/06/financial_shenanigans.pdf
shenanigans may likely have fueled the increase. ENRON: Financial Shenanigans Identified Earnings Manipulation Shenanigans Recording Revenue Too Soon Recording Bogus Revenue Boosting Income Using One-Time or Unsustainable Activities Employing Other Techniques to HideExpenses or Losses Cash Flow Shenanigans Shifting Financing Cash Inflows to the Operating Section Shifting Normal Operating Cash Outflows to the Investing Section Inflating Op
such as magnifying earning using on-time events and heightening revenues through manipulative classifications.
Exercise 71
With this in mind so far, how did Qwest Communication International and AmeriFunding Corporation pull off their fraud? Which techniques based on Howard M Schilit’s seven financial Shenanigans did they use? According to U.S. Security and Exchanges Commission (n.d.) The Securities and Exchange Commission sued Qwest Communication International Inc for different financial fraud. First, the company used manipulative revenue recorded, which misleads investors to believe that it was doing well. U.S. Security and Exchanges Commission (n.d.) suggests between the second quarter of the company’ financial report that ended 30th July 1999 and the first quarter that ended on 31st March 2002; the company engaged in multiple financial manipulations. As a result, misleading the public investor to believe that it was doing well in its earning and growth while this was not the case in reality.
Moreover, in its report, the company spuriously claimed to have approximately $3.8 billion in revenues and intentionally excluded a cost of $231 million in its operations (U.S.U.S. Security and Exchanges Commission, n.d.). This practice is among Howard’s financial shenanigans of employing other techniques to hide expenses or loss and shifting current expenses to a later period (https://www.coursehero.com/file/10766614/Acct-551-Spring-2014-Final-Exam-Review-Sheet/
expenses. You should be prepared to discuss: Recording Revenue Too Soon Recording Bogus Revenue Boosting Income Using One-Time or Unsustainable ActivitiesShifting CurrentExpensesto a Later PeriodEmploying Other Techniques to Hide Expenses orLosses Shifting Current Income to a Later Period Shifting Future Expenses to an Earlier Period Cash Flow Tricks Be prepared to identify and explain methods of shifting cash inflows and outflows, inflating cash using acquisitions, disposals and unsu
. In other words, Qwest Communication Corporation used these techniques to artificially inflate its stock and manipulate the public as the best earning growth and potential for future success. U.S. Security and Exchanges Commission (n.d.) adds that the company did not have appropriate internal management and it did not manage its accounting books well. This led to multiple errors such as an overstatement of $56 million revenue in operation service an improper capitalized cost $200 million in design services and an understatement of $850 million in its merger project. This reveals another way through which the company engaged in manipulative financial shenanigans of hiding expenses and losses. The company’s financial manipulative techniques include bogus recording revenues since it records appropriate transactions with excessive revenues. This is much apparent in the sense that the shared selling $55 after the merger with U.S. U.S. West suddenly dropped to $1.11 per share in 2022 when its financial shenanigans started to be realized.
On the other hand, hand the AmeriFunding financial shenanigans mostly involves its executive team and a significant percentage of its employee who designed a manipulative scheme about its financial performance and position. Federal Bureau of Investigation (2013) suggest that according to the evidence presented to the court against Spanier, former owner of American Capital Finance, the company falsely represented its potential to lend money to other organization and individuals. The company intentionally manipulated other corporations and individuals to provide millions of dollars in its stocks. At the same time, in the real case, it did not have any money but used borrowers stock that was promised as collateral to sustain itself. According to the Federal Bureau of Investigation (2013), Spanier collaborated with other executives and employees such as Douglas McClain and James Miceli, which implies that the scheme was a planned financial shenanigan technique for fraudulent activities. The fact that borrower stock was sold despite promising otherwise indicates that this organization was engaged in a false presentation of its financial positions.
Conclusion
Howard M. Schilit’s financial shenanigans include recording revenue soon than expected, recording bogus revenue, developing false revenues, boosting income with one-time earnings, eliminating liabilities, and moving current income (http://www.studymode.com/essays/Creative-Accounting-And-Ethics-1809765.html
gement, earning smoothing, financial engineering and cosmetic accounting (Bokin 2005). The ways that companies usually manipulate their accounts include recording revenues too soon, recording bogus revenues, boosting income with one timegains, shifting expenses and incomeforward and backward, failure to disclose liabilities and changing estimates such as bad debts, litigation costs, capital asset lives, and pension assumptions (Schilit, cited in Davin n.d.). While op
or expense to a future period. These categories of financial shenanigans help investors to identify the possible existence of financial fraud in the financial reporting of a particular corporation.
