Cook The Books

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DEFINITION of 'Cook The Books'

A buzzword describing fraudulent activities performed by corporations in order to falsify their financial statements. Typically, cooking the books involves augmenting financial data to yield previously non-existent earnings.

Examples of techniques used to cook the books involve accelerating revenues, delaying expenses, manipulating pension plans and implementing synthetic leases.

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BREAKING DOWN 'Cook The Books'

During the first couple of years of the new millennium, large Fortune 500 companies such as Enron and WorldCom were found to have been cooking the books to improve their financial figures. The resulting scandals gave investors and regulators a rude awakening concerning the reality that companies were hiding the ugly truth between the lines of financial data.

In order to rally investor confidence, the Sarbanes-Oxley Act of 2002 was created. This act of Congress created policies to protect investors against future incidents of corporate fraud.

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