business and investing

The management teams of publicly traded corporations have many obligations to the owners (who are the shareholders) of the company. Two of those obligations involve financial statements. First is to report an accurate picture of the financial state of the firm - which argues for conservative accounting. Second is to maximize the share price - which argues for more aggressive accounting because higher reported earnings tend to produce higher share prices. These contrary pressures create differnt outcomes in different firms and investors need to be aware at what is happening at their firm.

This wonderfully informative book shows us how to understand financial reporting so we can determine if a given company is using conservative, aggressive, or even fraudulent accounting. I found it fun to read about the cases of shenanigans and how they were perpetrated and exposed. I also found it informative to learn about the gradations of shenanigans from aggressive reporting to outright fraud.

It seems to me that most people who want to put their hard earned savings into equity investments would do well to educate themselves at least a little to the potential pitfalls that occur when a management team is willing to break their trust with investors. It has been pointed out by others that many folks put more time and analysis into buying a refrigerator or a lawnmower than in their retirement investments. When you think about it that way, the misplaced priorities of some investors become clear.

Dr. Schilit has a lively writing style that keeps things from bogging down. This book isn't a hard read and can help the average investor understand more about what companies can and have done to basically phony up what they report to investors. Much of it is NOT illegal, but aggressive corporate behavior and reporting has too often led to disaster for investors. If you can clearly see which companies use aggressive accounting and which are conservative, you can better decide if you want to take on the risk associated with the aggressive accounting and the management style it represents. Maybe it is worth it, maybe it isn't, but at least you can decide for yourself rather than being in the dark.

The author takes us through seven shenanigans that show up over and over again and more than two-dozen techniques that have been used to accomplish them. Many of the examples included are from well-known companies you may be doing business with today. He also has some helpful information on how to do vertical and horizontal analysis of financial statements in order to find the early warning signs that something might be amiss. The book culminates in an extended analysis of the financials of a famous case of Shenanigans: Miniscribe - the late maker of hard drives.

And if you don't know anything about reading financial statements, there is a very helpful appendix giving you the basics of reading them and what they can and cannot help you see.

Dr. Schilit also provides a list of online resources (only one of which is his own) that can help you do research on potential investments. He also provides key phrases (indicating danger) to search for in annual reports.

No, this book will not make you a forensic accountant. But, yes, you will be more informed after having read it and that will help you make more informed decisions. Of course you can still make bad investment decisions, but they will likely have somewhat more reasoning behind them and maybe you can make fewer of them.

I personally agree with the author that being aware of aggressive accounting practices is a kind of early warning system for the more serious problems that follow on all too often and always at shareholder expense. This book is worth the investment of your dollars and time in order to avoid the kinds of losses associated with companies that choose to misrepresent their actual financial condition to their shareholders. Note the headlines recently about Royal Dutch Shell Oil and its accounting reserves and earnings.

The book does have a couple of minor typos, but they don't change the story much. They are usually easy to see and to adjust for in your reading of the example at hand. Yes, it would have been nice to not have them and I hope they catch them in a future printing. There is also a very useful index.

Overall, a valuable book and a very fine job!

It seems as if the positive reviews on this book are being given negative votes out of disagreement with liking the book rather than the review itself. I would be happy to receive emails from those of you who dislike the book so I can understand why.

This book was updated on the heels of the WCOM and ENE scandals. There are many interesting techniques available for the researcher here. It requires a meticulous person to properly apply these techniques. However, the average person with a limited number of holdings might do very well with applying these techniques to their portfolio. See the table of contents for a listing of the 7 "financial shenanigans".

Some of the items on Schilit's governance wish list are dealt with by the Sarbanes-Oxley legislation. This will do away with much of management's self-dealing and sleight of hand when presenting pro forma earnings. Some of the "shenanigans" have been dealt with FASB promulgations so there are less of an issue.

Schilit is too harsh on the FASB over the failure to expense stock based compensation the first time it was considered. The forces that oppose the FASB n that issue generated a considerable political threat to FASB's existence in Washington. FASB backed down was preserved and we are all the better for it. FASB is addressing this issue in an exposure draft and it appears likely that it will move forward this time despite the same forces trotting out the same vacuous arguments a second time. Schilit should have given better context with his critique of the FASB.

I remember seeing a piece in Grant's interest rate observer (a newsletter) about a presentation by Trevor Harris (an accounting expert employed by a bulge bracket firm). The article stated that hedge fund managers treated Harris like a rock star, because they needed to learn how to analyze the names in their portfolios better. Harris was simply presenting topics much like are found in this book.

In this book you will learn about many of the manipulations that have been used in the past by companies. Schilit uses the "case" method of teaching. The examples almost all have a real life demonstration of how the trick manifested itself.

At times, the book reads like an advertisement for Schilit's CFRA subscription service. There are 13 such references in the index. I guess this is to be expected, but is still a distraction in an otherwise fine book.

This accounting book covers everything we wished we learned in our introductory accounting class, namely "How do we know if the managers are lying to us?"

In a very easy to read format, the book groups accounting tricks into seven major accounting shennanigans and then cross-references them to a variety of accounting scandals. In the end, you're left with a deeper understanding of the major ways people can manipulate financial statements for their own game.

A surprising interesting book given how dull most accounting texts are. It practically reads itself.