Business Fairy Tales: Grim Realities of Fictitious Financial Reporting [Hardcover]

Cecil W. Jackson (Author)

Book Description

Publication Date: July 11, 2006 | ISBN-10: 0324305397 | ISBN-13: 978-0324305395 | Edition: 1

On the heels of the Enron trial, there are many lessons to be learned from the barrage of fraud hammering corporate America -- including how to spot signs of future impropriety. In a gripping and intriguing read, BUSINESS FAIRY TALES uses real-world scandals to illustrate the top twenty most common methods used by companies to fraudulently overstate their earnings and hide their debt. Based on an analysis of the frequency of Securities and Exchange Commission (SEC) enforcement actions, it identifies the twenty most prevalent accounting schemes. The book explains each accounting trick with a detailed, engaging story of a company and the officials who committed a spectacular version of that method of fictitious financial reporting. It goes behind the scenes to describe the organization's acts of deception, and to examine the character failures of the leaders. In addition to the specific cases, the book presents a compelling argument for the kind of reform that is needed, as well as the ethical frameworks that must support authentic reform. Ultimately, BUSINESS FAIRY TALES equips and empowers readers with the skills to spot signs of potential accounting fraud so that investors and employees can be forewarned of future financial shocks. It provides analysts and students with the specific, tell-tale signals of the top twenty financial-reporting frauds and schemes -- signals that are inevitably left behind in financial statements that have been manipulated.

Editorial Reviews

Review

"Jackson walks the reader through the various ways unsuspecting investors can be led down the garden path through accounting tricks...Jackson has a knack for bringing complicated financial concepts like goodwill down to earth, and for demonstrating how they can be used to inflate earnings." Barron's Magazine, Sept. 25, 2006

"The 'fairy tales' of the title are the companies' financial reporting, which is described in what reads like a series of horror stories. The Grimm-style moral is obvious, but author Cecil W. Jackson goes further, equipping the reader with the skills to spot the 20 most common forms of corporate impropriety, and hopefully avoid this kind of nightmare in the future." Accounting Today, Oct. 2, 2006

"There are many more lessons in this book. They are based on real cases, and the author does an excellent job in providing ways to detect possible mischief. And, as a book that can help me avoid trouble with my investment picks, it's certainly a bargain." Tom Taulli, The Motley Fool, Oct. 31, 2006

About the Author

Dr. Cecil W. Jackson, CPA, is a Professor of Clinical Accounting in the Marshall School of Business at the University of Southern California. He teaches courses on fraudulent financial reporting, forensic accounting, and managerial accounting on the MBA program as well as the graduate and undergraduate accounting programs. He has been on the faculty at USC since 1987. He holds a Master’s degree in Accounting from Rhodes University and a Doctorate in Accounting from the University of South Africa. He has worked for two major public accounting firms and is both a chartered accountant and a CPA. He presents seminars and consults on aggressive financial reporting issues. Professor Jackson is the Director of the USC Center of the California Council on Economic Education (CCEE). He lives in Los Angeles.

Product Details

• Hardcover: 281 pages
• Publisher: South-Western Educational Pub; 1 edition (July 11, 2006)
• Language: English
• ISBN-10: 0324305397
• ISBN-13: 978-0324305395
• Product Dimensions: 9.2 x 6.1 x 1.2 inches
• Shipping Weight: 1.2 pounds
• Average Customer Review: 4.6 out of 5 stars  See all reviews (10 customer reviews)
• Amazon Best Sellers Rank: #982,381 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

14 of 15 people found the following review helpful:

5.0 out of 5 stars An entertaining handbook for investors, September 20, 2006

By 

D. N. Benatan (London) - See all my reviews
(REAL NAME)   

This review is from: Business Fairy Tales: Grim Realities of Fictitious Financial Reporting (Hardcover)

I found "Business Fairy Tales" engrossing and remarkably readable. When one considers the mystique that surrounds the scandals of questionable accounting techniques and poor corporate governance it is easy to believe that only an accountant could follow the details. Not so. Dr Jackson presents all of the material facts in very human narrative making it easy to follow the methods applied. He develops the key characters enough that I could sense the opportunities that tempted them and felt I gained some insight into their motivation.
After exploring each case the author presents straightforward tests or indicators that any investor can apply.
Perhaps the recent corporate scandals are themselves indicators that we have naively relied too much on regulators, analysts and auditors to protect us from risky investments. The measures set out in "Business Fairy Tales" won't replace professional guidance, but they can equip both investors and their advisers to spot risks early and raise the right questions. All this and an enjoyable read!

3 of 3 people found the following review helpful:

5.0 out of 5 stars A must-read for investors in individual companies, July 9, 2010

By 

David Alexander (Atlanta, GA) - See all my reviews

This review is from: Business Fairy Tales: Grim Realities of Fictitious Financial Reporting (Hardcover)

This book is a series of case studies of accounting malfeasance over the last twenty years. The author reviews Enron, Worldcom, Sunbeam, Xerox, and about a dozen others whose transgressions range from too-aggressive judgment calls to massive and continuous deception. Each chapter has a natural progression from the history of the company and the leading actors, to the specific mechanisms by which they misled the investing community, and then most importantly, to the red flags in their financial documents that should have raised eyebrows long before the truth became common knowledge.

The wheat-to-chaff ratio is extremely high. Much of what passes for financial education in the popular press are storybooks and pablum. If you're investing in individual companies, the only way to move beyond gambling is to get your hands dirty with financial statements. Accounting textbooks will give you the theoretical knowledge to do this, but they won't tell you the slippery ways corporate brass can manipulate operations to fudge the numbers.

A few common schemes:

* Recognizing an arbitrarily high, one-time restructuring expense immediately after an acquisition, which is then released back into earnings in later periods to inflate income

* Recording future and contingent merchandise sales, or future income from contracts, in the current period

* Understating operating expenses by pretending as if the money had gone to the purchase of an asset

* Understating cost of goods sold by failing to account for loss of inventory through shrinkage

* Hiding liabilities in ostensibly independent holding companies that are actually controlled by the principal

While the author deftly unwinds this duplicity in a retrospective, it isn't within his power to suggest ways to determine with certainty whether fraud is occurring. That isn't the point of the book. No outside investor is privy to the full details of company operations, and many of the larger shams were so intentionally convoluted that unraveling them wasn't even within reach of the firm's auditors.

What he does suggest are certain high-level metrics for which the change, or lack of change, over time should raise suspicion. Few companies act fraudulently from the outset. They almost always have a period of normal operation that can be used as a point of comparison for their current behavior. Moreover, even when a company is violating GAAP, the numbers in their financial statements still have to be internally consistent; the paper trail must end somewhere. While actual fraud is difficult to detect, this book will provide you with the tools to cast enough doubt to steer clear of questionable prospects. In context then, it's a bargain.

2 of 2 people found the following review helpful:

4.0 out of 5 stars Valuable Information For Accountancy Literate Investors, January 7, 2007

By 

Dr. Thomas E. Bell "Tinker Bell" (Los Angeles, CA) - See all my reviews
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This review is from: Business Fairy Tales: Grim Realities of Fictitious Financial Reporting (Hardcover)

Business fantasies (including turn-arounds) sound really good, until reality crashes in. How do the manipulators get away with it? Well, people don't understand what the manipulators are up to, and the fantasy is much more appealing. People looking for investing opportunities want to believe in a bright future, so they overlook minor issues like false and deceptive financial reporting.

This book describes many of the financial techniques used to create the fantasies. It can be quite useful to serious investors who want to avoid investing in fairy tales, but a reasonable knowledge of accounting is necessary to understand the material. Many of the suggestions would be very difficult to implement by anyone without access to internal records, so don't expect to use everything directly.