Fraudulent Financial Statements FSCT 8491

Upon successful completion, the student will be able to:

• Explain the use and importance of the information that may be found in financial reports and other information sources, in detecting financial statement fraud.
• Evaluate a comprehensive financial report (including financial statements) to determine whether it reflects the characteristics that distinguish low-quality from high-quality earnings.
• Develop an earnings-management detection strategy.
• Analyze a balance sheet using horizontal, vertical, and ratio analysis, as well as by applying detailed analysis to line-items for the purpose of detecting manipulation of assets, liabilities, and earnings management.
• Analyze an income statement, using high-level and detailed approaches, for evidence of misstatement of revenues and/or expenses.
• Analyze cash flow statements for the purpose of detecting misstatements and miscategorizations.
• Analyze a set of financial statements, using discriminant models such as the Beneish M-score and the Altman Z-scores, to determine whether there are indicators of earnings manipulation or other misrepresentation.
• Compare and contrast alternative measures of profitability and of cash flow, with emphasis on the relative quality of information that each conveys.
• Scrutinize financial reports for indicators of fraudulent reporting by analysis of trend, norm, and quarterly data.
• Evaluate the likelihood of earnings management or other financial statement manipulation in situations involving business combinations, segmented reporting, employee compensation and benefits, derivatives, and special-purpose entities.

Effective as of Winter 2007