How to understand the figurers – introduction.
I'm sure you've already met with the information, that this or that company faked the data on their financials books and reported false results. Scammers often resort to practices of accounting for fictitious sales, reduce, or cover the costs, and so on. There are known simple practices, but also the highly sophisticated techniques, which is not so easy to detect.
But they are also practices that are legal, and it's just only about it, how the figures are presented to shareholders or managers or auditors or investors. There are many ways how to show the financial results in a better light. Legitimate tools are indeed not so powerful as direct fraud. Certainly not able to handle, so that failing companies looks like profit-making ones from the long perspective. However, can arrange many. For example, if the bad news are accumulated, there is nothing easier than the pack them into one of the quarter, and behold, next quarter looks much better. The company set out "the right way". This spell you will achieve by so called "one-time book entry" technique.
Even if it doesn't appear, and one could say that after all, the accounts and finance must show clear and truthful outputs, it is not so clear and easy. You should be aware that:
Finance and accounting reflect reality, there are not reality itself.
And, therefore, how the results will look like in the accounting documentation, determines the view and judgement of the person who handles them in the books and records. It depends on the capabilities of accounting and financial professionals to create meaningful assumptions and reckon with meaningful estimates. And distortion of these numbers is precisely the result of these estimates and assumptions. What is important to note, may not be done with the bad! Or just Yes. And now be well up in this! As you can see, accounting and finance are art and science at the same time. Indeed, as well as other business disciplines.
In accounting, you are working with judgements, estimates and other uncertainties, to which others may have a different opinion. So, you are creating the financial documentation, which as a result, the further they will use for their decision making external investors, bankers, customers and suppliers. If you not well control creating the financial statements, you will not be able understand the linkages, relationships and the effects of individual operations, you are at the mercy of the abovementioned groups of experts, and often not even understand what you are really asking for.
The aim of the following topics is to understand in these bindings, to understand the possible misrepresentation numbers and thus the accounting documentation, and where appropriate, this distortion corrected and used to his advantage by a legal manner.