CFA Level 1 - Chapter 10: Red Flags

INTRODUCTION

We conclude our five chapter discussion on financial statements with a brief, yet important chapter on red flags. Although companies are required to follow Generally Accepted Accounting Principals (GAAP), many companies find loopholes and ways to fudge their numbers. These items are crucial for analysts to recognize in order to avoid recommending poor investments to their clients. Prime examples of recent bad apples are Enron and Worldcom.
The following articles are great resources on spotting the signs of earnings manipulation, learning telltale signs of corporate misdeeds, and how off-balance sheet entities can be misleading:

Cooking the Books
Putting Management Under the Microscope
Off-Balance-Sheet Entities: The Good, the Bad and the Ugly

Next: CFA Level 1 - Managerial Discretion

Table of Contents

1) CFA Level 1 - Chapter 10: Red Flags

2) CFA Level 1 - Managerial Discretion

3) CFA Level 1 - What are Shenanigans?

4) CFA Level 1 - Why Do Shenanigans Exist?

5) CFA Level 1 - Finding Shenanigans