Detecting Accounting Fraud Before It's Too Late

ORIOL AMAT is a professor of financial economics and accounting at Universitat Pompeu Fabra in Barcelona, Spain; and dean of the UPF Barcelona School of Management. He is also the director of the master’s program in accounting and finance. In addition, Amat is president of the Catalan Accounting Association (ACCID) and was previously a member of the Catalan Parliament and a board member of the National Commission of the Stock Exchange.

• Prologue xiIntroduction xiiiChapter 1 Fraud and Accounting Manipulations 11.1 Fraud and Its Effects 11.2 Modifying Companies’ Financial Information 21.3 Calling Things by Their Name: From Creative Accounting to Big Baths 4Chapter 2 Accounting Fraud: An Ancient Practice 92.1 The First Accounting Frauds 92.2 Accounting Frauds Continue with the Double Entry 102.3 The Crash of 1929 and the Obligation to Audit Accounts 122.4 Reinforcement of the Commercial Law and Auditing After the String of Scandals of 2000 132.5 With the Crisis of 2008, History Repeats Itself 15Chapter 3 Problems with Legislation and Those Involved in the Financial Information 193.1 How Financial Information Is Generated 193.2 Auditing of Accounts: Essential, but Not Infallible 203.3 Analysts and Rating Agencies 233.4 Regulators and the Limitations of Accounting Regulations 263.5 Role of the Media 29Chapter 4 Why Are Accounts Manipulated? 314.1 Motivation, Opportunity, and Rationalization 314.2 The Door to Fraud 34Chapter 5 Legal Accounting Manipulations 475.1 Alternatives, Estimations, and Legal Gaps 475.2 Main Legal Manipulations 525.3 Impact of Legal Manipulations in the Accounts 58Chapter 6 Illegal Accounting Manipulations 616.1 Accounting Crime 616.2 How Illegal Manipulations Are Done 636.3 Operations Through Tax Havens 656.4 Main Illegal Manipulations 686.5 Main Items Affected by Accounting Frauds 70Chapter 7 Ethical Considerations and Economic Consequences of Manipulations 757.1 The Ethical Dimensions of Accounting Fraud 757.2 Economic Consequences of Accounting Fraud 777.3 Consequences to Managers and Companies that Manipulate Accounts 777.4 What to Do When a Company Deteriorates 79Chapter 8 Personal Warning Signs 858.1 Moments the Warning Signs Occur 858.2 Warning Signs Before Fraud Occurs 878.3 Warning Signs After the Fraud Occurs 898.4 Language of Fraudsters 918.5 Successful Businessmen Who End Up in Jail 93Chapter 9 Organizational Warning Signs and Nonfinancial Indicators 999.1 Warning Signs Before a Fraud Occurs 999.2 Warning Signs After a Fraud Occurs 1069.3 Warning Signs Based on Nonfinancial Indicators 107Chapter 10 Warning Signs in the Accounts 11110.1 Auditing of Accounts 11110.2 Balance Sheet 11210.3 Income Statement 11310.4 Cash Flow Statement 11510.5 Statement of Changes in Equity 11910.6 Notes 12010.7 Ratios That Anticipate Frauds 12110.8 Variations in Accounts that Warn of Frauds Already Produced 12310.9 Ratios That Warn of Frauds Already Produced 12410.10 Synthetic Index to Detect Manipulating Companies 133Chapter 11 Some Suggestions to Improve the Current Situation 14111.1 Reinforce Values and Institute Ethical Codes 14111.2 Improve Control Systems in Organizations 14311.3 Improve Regulation 14711.4 Reinforce Supervision 14811.5 Reinforce the Sanctioning Regime 14911.6 The Challenge of Providing Relevant Information for Decision-Making 150Epilogue 155Appendix 1 Criminal Responsibility of Legal Entities and Regulatory Compliance 157Appendix 2 Audit Program for the Identification of Fraud Risks 161List of Companies Mentioned in the Book and Section in which They Appear 179Index 183

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