FORENSIC ACCOUNTING BA124 Fall 2006Slide 181

1
Todays Topics

• Shenanigan 7
• Money Laundering

2
Shenanigan 7

• The sunll come out tomorrow
• How to make your firms future sunny
• Shifting future expenses into todays operations
• Key question why do firms do this?

3
Techniques

• Inflating a special charge
• In-process research and development
• IPR D
• Accelerating use of discretionary reserves

4
Inflating Special Charges

• The continuing saga of Chainsaw Al
• Illusion of a successful restructure
• How Sunbeam did it
• Inflated special charges
• Release of reserves in the future
• Ultimately, bogus revenue

5
Sunbeams Red Flags

• Excessive post-acquisition charges
• Reserve declines
• DSO growth
• Plummeting cash flow from ops.
• Unrealistically high gross margins

6
Other Examples

• Ciscos inventory reserve reversal
• JDS Uniphases goodwill

7
In-Process R D

• What is it?
• Some real world examples
• General Instrument
• Compaq
• U.S. Robotics
• Disney
• The bottom line?
• Examine these practices closely

8
Acceleration of Discretionary Expenses

• Prepayments
• Reductions in depreciable lives

9
Money Laundering

• Layering techniques
• Sopranos analogy