FORENSIC ACCOUNTING FOR INSTITUTIONAL INVESTORS

Description

Our Forensic Accounting Course is designed to help investment analysts detect earnings manipulation. It focuses on creative accounting rather than conducting detailed forensic analysis but we explain the tools short sellers employ to detect fraud and some of the techniques we used at hedge funds to identify short opportunities. 

We train investment professionals. Hundreds of equity and credit analysts and portfolio managers have taken our Forensic Accounting course. Our service is unique in that our courses are created and delivered by practitioners. We have decades of experience on the buy-side so we understand your needs. We also do bespoke research.

The course has some 200 real-life examples of tricks and several in-depth case studies. Delivered by a veteran analyst, Stephen Clapham with 30+ years of experience, it also draws on a number of relevant academic studies. 

Your analysts will go away with an increased awareness of the importance of:

• Working capital ratios, and how best to modify them to detect early revenue recognition

• Cash from operations – how it can be boosted to make companies appear more valuable

• Expense capitalisation – how companies defer recognition of liabilities

• Accounting policy tricks companies use to flatter their earnings

• Expense manipulation to boost or in some cases, depress profits

• Other methods of temporarily boosting earnings, or faking earnings

• Warning signals to detect deteriorating accounting quality

Part 1: The Theory

1. Introduction: Why understanding creative accounting is important, and why now

2. Bad actors and case studies

3. Issues with recognition of revenue

4. How companies manipulate expenses

5. Other tricks used to inflate profit

Part 2: How to Detect Earnings Manipulation

6. Warnings signals to watch for and common characteristics of manipulators

7. Tools and ratios used by short sellers and forensic accountants

8. Balance sheet parameters – what to look for and examples

9. P&L tricks, ratios and company examples

10. Cash flow: common tricks and company examples

"The team, to a single person, found the Forensic Accounting Course very useful. From our point of view, it went very well and ticked the boxes we were after"

"The content of Behind the Balance Sheet's Forensic Accounting Course was selected and organised thoughtfully and well. The course was packed with useful pointers and tips, as well as rich examples and case studies that helped contextualise and bring the ideas and lessons to life."

Rob Harley, Analyst, Stewart Investors Edinburgh office

The course uses many examples to build pattern recognition among students. We see little advantage in teaching how to calculate the Beneish M-Score (a popular indicator of earnings manipulation), as it is readily available on Bloomberg or in a spreadsheet. 

Instead, we focus on why it works, how it’s constructed, show its performance and flag current offenders. We then give examples of how companies manipulate earnings for each parameter in the M-Score. The benefit to students is they understand the philosophy and can better spot similar examples in future. It also makes for a more interesting course.

“After the long 1990s bull market, there was an explosion of accounting frauds, starting with Enron, and which did not finish with Tyco – this cycle will be no different”

We believe that at the end of a long bull market, we shall see a repeat of the series of frauds uncovered at the end of the tech boom. We believe that it could be worse now, as executive compensation encourages manipulation, auditors have become more sloppy, sell-side analysis has become “juniorised”, and company accounts are even more complicated.

We see this as likely to be most prevalent among small-caps but large caps are by no means immune and we believe that some highly rated glamour stocks will be exposed in the next downturn.

If you are one of the many asset managers who spend huge sums on the research team, yet whose training budget is not always successfully deployed, please consider giving us a trial. Research skills can be learned, honed, and advanced at a relatively limited cost. To find out more, please contact us at info@behindthebalancesheet.com.