The Financial Numbers Game: Detecting Creative Accounting Practices [Hardcover]

Charles W. Mulford (Author), Eugene E. Comiskey (Author)

Book Description

Publication Date: January 18, 2002 | ISBN-10: 0471370088 | ISBN-13: 978-0471370086 | Edition: 1

Praise for The Financial Numbers Game

"So much for the notion 'those who can, do-those who can't, teach.' Mulford and Comiskey function successfully both as college professors and real-world financial mercenaries. These guys know their balance sheets. The Financial Numbers Game should serve as a survival manual for both serious individual investors and industry pros who study and act upon the interpretation of financial statements. This unique blend of battle-earned scholarship and quality writing is a must-read/must-have reference for serious financial statement analysis."
-Bob Acker, Editor/Publisher, The Acker Letter

"Wall Street's unforgiving attention to quarterly earnings presents ever-increasing pressure on CFOs to manage earnings and expectations. The Financial Numbers Game provides a clear explanation of the ways in which management can stretch, bend, and break accounting rules to reach the desired bottom line. This arms the serious investor or financial analyst with the healthy skepticism required to drive beyond reported results to a clear understanding of a firm's true performance."
-Mark Hurley, Managing Director, Training and Development Global Corporate and Investment Banking, Bank of America

"After reading The Financial Numbers Game, I feel as though I've taken a master's course in financial statement analysis. Mulford and Comiskey's latest book should be required reading for anyone who is serious about fundamentally analyzing stocks."
-Harry Domash, Investing Columnist, San Francisco Chronicle and Publisher, Winning Investing

The Financial Numbers Game identifies the steps businesses may take to misstate financial performance and helps its readers to identify those situations where reported results may not be what they seem.

Editorial Reviews

Review

"The author's purpose is "to equip the financial statement reader to better detect the use of creative accounting practices and avoid the equity-investment and credit-granting mistakes." A book for it's time" (Strategic Finance, March 2002)

"With the collapse of Enron Corp., the January debut of the "Financial Numbers Game" could not have arrived at a more perfect time. The book focuses on educating investors on how to spot "creative accounting Practices." Co-Author Charles W. Mulford outlines a few basic guidelines for detecting-and preventing-creative accounting." (SmartPros/Accounting News and Insights, March 2002)

From the Inside Flap

To hide falling profits, some managers ply the flexibility found in accounting principles to alter their financial reports. Others go further and use fraud in their deception. It is vitally important that investors, analysts, and other users of financial statements detect these creative accounting practices as early as possible in order to avoid negative earnings surprises and potential share-price declines. The Financial Numbers Game identifies the steps businesses may take to misstate financial performance and helps its readers to identify those situations where reported results may not be what they seem.

Authors Mulford and Comiskey also describe the flexibility built into the GAAP principles and discuss ways companies can take advantage of that flexibility while remaining within the rules of proper reporting. The role of the SEC in enforcing securities laws is explored, as are the specific statutes the SEC uses to prosecute those it deems to have gone too far. The authors present the results of a survey of important financial professionals on their views of the propriety of many financial reporting practices and on the steps they use to detect creative accounting practices. This survey shows a wide range of opinions on what is allowable and the best methods for detecting what is not allowable.

The Financial Numbers Game presents an expert analysis of creative accounting procedures, as well as:
* Real-world examples of aggressive and fraudulent financial reports
* What signs to look for in detecting earnings manipulation
* Ready-made checklists for detecting accounting misdeeds
* Advice from such experts as analysts, CFOs, and CPAs
* Help for anyone interested in understanding true financial performance

The Financial Numbers Game offers all users of financial statements a comprehensive resource for understanding, detecting, and avoiding the vast assortment of creative accounting techniques found in practice today.

See all Editorial Reviews

Product Details

• Hardcover: 407 pages
• Publisher: Wiley; 1 edition (January 18, 2002)
• Language: English
• ISBN-10: 0471370088
• ISBN-13: 978-0471370086
• Product Dimensions: 10.2 x 7.3 x 1.3 inches
• Shipping Weight: 2.3 pounds (View shipping rates and policies)
• Average Customer Review: 4.1 out of 5 stars  See all reviews (26 customer reviews)
• Amazon Best Sellers Rank: #610,248 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

47 of 48 people found the following review helpful:

3.0 out of 5 stars Too basic and the title is really a misnomer, March 8, 2005

By 

Daniel - See all my reviews

This review is from: The Financial Numbers Game: Detecting Creative Accounting Practices (Hardcover)

Given the promise of the book's title, I was disappointed. "The Financial Numbers Game" is really alomst a misnomer as the book spends many pages on explanations of basic accounting principles - much like an introductory textbook - and then discussed some of the more obvious creative accounting practices. What you do get from this textbook is an overall solid overview of basic GAAP, with a large number of real world examples (which is good). What you don't get is real insight into some of the more interesting ways companies use to manage earnings and their balance sheet. For example, I could not find anything on special purpose entities, off balance sheet financing, dirty surplus accounting, a meaningful discussion of EBITDA beyond the basics, and anything beyond the obvious, really. I also thought the discussion of receivable days was problematic (chapter eight). This may go into too much detail but the authors calculate this ratio based on the ending balance of accounts receivable rather than some average (eg, beginning and ending balance if nothing else is at hand). This actually distorts the ratio and results in an incorrect analysis of the development of receivables where they change between periods. This is not good for two academics.

As previous reviewers pointed out, the book has too many repetitions which a good editor should have caught.

I like the solid accounting overview and the multitude of examples the text provides and that merits three stars. If you are an MBA student who is interested in an accounting refresher, this may be a book for you. If on the other hand you are a professional analyst or investor - what the authors call serious readers of financial statements in their preface - then this will disappoint you.

30 of 32 people found the following review helpful:

5.0 out of 5 stars Excellent Texts for Improving Security Analysis, April 8, 2002

By A Customer

This review is from: The Financial Numbers Game: Detecting Creative Accounting Practices (Hardcover)

Having recently worked through all three of Mulford and Comiskey's financial reporting texts, I'd like to comment on them as a group.

The Financial Reporting Game contains unique material which I have not seen outside of specialized academic journals, and discusses most of the parameters I use in my own earnings manipulation model, developed through painful experience and correspondence with other practitioners. I suggest this text as a more efficient means to acquire this knowledge. The first five chapters of introductory material discuss the motivation and consequences of earnings manipulation from the viewpoint of the regulator, the reporter, and the user of financial statements. While the preliminary chapters are less quantitative than the rest of the book, I believe they cover the subject far more comprehensively than Fridson's Financial Statement Analysis, or any other text I can recall.

Guide to Financial Reporting and Analysis is indispensable, and one of the most practical texts on applied security analysis available. The efficient search procedure for non-recurring items is alone worth the cost of the book. I'm convinced that one of detriments to effective use of periodic and annual financial statements is the opacity of the notes to consolidated financial statements and their frequently indecipherable relation to the consolidated tables themselves. The authors propose and demonstrate a framework for relating complex financial notes into the core activity of the security analyst, which is measuring the sustainable earnings power of the corporation under study.

Financial Warnings predates Guide to Financial Reporting and Analysis by four years. Its focus is on how corporate accounting choices can change perceptions and calculations of sustainable earnings power [and consequently stock valuation]. Financial Warnings suggests and demonstrates clear techniques for analyst restatements. I found it helpful to work through Financial Warnings after I had completed Guide to Financial Reporting, in order to test my understanding of the accounting principles discussed.

To sum up, I strongly feel that if you take the time with a spreadsheet and a 10K to work along with the dozens of examples provided by the authors in each of the texts, the quality of your financial analysis will improve both in accuracy and in rigor.

32 of 36 people found the following review helpful:

4.0 out of 5 stars Frustrating but valuable, July 31, 2002

By 

Buce (Palookaville) - See all my reviews

This review is from: The Financial Numbers Game: Detecting Creative Accounting Practices (Hardcover)

Mulford and Comiskey badly need an editor, clear-sighted and heartless. There is a wonderful book here, but it is maddeningly difficult to extract from the text as presented -- ill-organized and repetitive and in coverage, perhaps even haphazard (another reviewer note that they don't cover reserves -- true, and I wonder if this is simply an oversight?). That said, this remains the best introduction that I've seen to games managers play (and in which accountants cooperate). More extensive (and less jaunty) than Howard Schilit (Financial Shenanigans). For broader coverage on the limits of accounting, move on to Eccles, etc., "The ValueReporting (sic) Revolution." After the dust settles from the Enron imbroglio, M&C will surely want to do a new edition: here's hoping they keep the same wonderful content, with better focus and analysis.