COOKING

THE BOOK
NHÓM 2

Tên thành viên:

-Đỗ Hà Thành
-Võ Thị Thu
-
-
COOKING THE BOOK?
2

 An idiom describing fraudulent activities performed

by corporations to falsify their financial statements

EXAMPLE
Accelerating revenues Delaying expenses

Manipulating pension plans Implementing synthetic leases

 COOKING THE BOOK 3

 A company is guilty of cooking the books when it

knowingly includes incorrect information on its
financial statements -- manipulating expenses and
earnings to improve their earnings per share of
stock (EPS).

 Cooking the books simply a way of making things

look better than they actually are.
 Making revenues appear larger than they actually
are, a struggling company could stay afloat with
investors' money until it can turn a true profit..

Cooking the books may deliver short-term results

but in the long-term it hurts shareholders, the
company, and the people who manipulated the
number.

Booking lump-sum payment
• Current sales when services actually
will be provided over several
quarters or years.
• Increase revenue for the first
quarters of the year
• If the business slows down (due to
the economic recession), income
will decrease significantly
5
Channel stuffing
• Used by a company to inflate its sales and
earnings figures by deliberately sending
retailers along its distribution channel more
products than they are able to sell to the
public.
• often done in an attempt to achieve
compensation goals,
• to enhance the value of stocks
• prevent its collapse when issuing quarterly
or annual results.
 6

Transferred data from the income

statement to the balance sheet

2. Delay
Expenses
where it was going to be expensed
over a period of years.
 7

To improve future income.

Before a merger is completed, the company that is being acquired

will pay – possibly prepay – as many expenses as possible.

After the merger, the earnings per share (EPS) growth rate of the
combined entity will be easily boosted when compared to past
quarters.
 8

Used for expenses only happens once to

keep it from affecting your regular
operating costs.

But it was abused by over-budgeting

for a "non- recurring" expense

Move the excess money over as

income.
 9

-This category can hide a

multitude of sins.

-Here companies book any "excess" reserves from

prior charges (non-recurring or otherwise).

-Companies can hide other expenses by netting them against other

newfound income.

-Normally: Sources of other income include selling equipment or investments.

 10

The company can improve

earnings by reducing the plan's
expenses.

6.Pension
Plans If the investments in the plan then
grow faster than the company's
assumptions, the company could
record these gains as revenue.
 11

-Off Balance Sheet (OBS) refers to assets

or liabilities that do not appear on a
7. Off-Balance-Sheet Items company's balance sheet.

- Some of the most common OBS assets

are operating leases, leaseback agreements
and accounts receivable.

- A company can create separate

subsidiaries that can house liabilities or
incur expenses that the parent company
does not want to be made transparent.
 12

-A synthetic lease can be used to keep the

cost of new building from appearing on a
company's balance sheet.

8. Synthetic Leases -The asset does not show up on the balance

sheet of the parent company. Instead, the
parent company treats the lease as an operating
lease – and gets a tax deduction for the
payments on the income statement.

-At the end of the lease, the parent company

is obligated to buy the building – a huge
liability that appears nowhere on the balance
sheet.
Illustrations: PetroVietNam Northern gas joint stock company

01 Establishment: 01/07/2007

02 Business lines:
Direct import and export of
liquefied petroleum gas
Trading materials, equipment
and accessories; invest in
building warehouses and filling
stations to serve liquefied gas
business activities;
Liquefied gas transport
service;
Not yet audited Audited

Difference
~1,23 billion
VNĐ
 Analysis differnce Accelerating
15

revenues
1.23 bilion VNĐ
04 Manufacturer makes a large shipment to a distributor
at the end of a quarter and records the shipment as
03 sales. But the goods are returned at the begin of
following period
02
Declaration of revenue is also done through
deliberately recording an increase in the factors on
01 the Invoice such as quantity, selling price

Recognition of revenue when the delivery

conditions are not completed, ownership transfer
and transfer risks to goods - services sold.
Include: 9.28 billion VNĐ recognition of dividends from 2010
profit of PGD.

31/12/2010, the above dividend distribution has not been

approved by PGD's shareholders' meeting

VAS 14 - Revenue and other income, dividends and divided profits

are recognized when shareholders have the right to receive
dividends

If the company applies VAS 14, revenue from financial activities

and profit before tax for 2010 will be reduced by VND 9.28 billion.