Cook The Books

Loading the player...

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.

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.

RELATED TERMS
  1. Voodoo Accounting

    Creative rather than conservative accounting practices. Voodoo ...
  2. Cookie Jar Accounting

    A disingenuous accounting practice in which periods of good financial ...
  3. Black Box Accounting

    The use of complex bookkeeping methodology in order to make interpreting ...
  4. Nigerian Barge Deal

    A 1999 agreement between Enron and Merrill Lynch in which Enron ...
  5. Financial Forensics

    A field that combines criminal investigation skills with financial ...
  6. Restatement

    The revision and publication of one or more of a company's previous ...
Related Articles
  1. Personal Finance

    Top 8 Ways Companies Cook The Books

    Find out more about the fraudulent accounting methods some companies use to fool investors.
  2. Fundamental Analysis

    How The Sarbanes-Oxley Era Affected IPOs

    After the infamous collapse of companies like Tyco, Enron and WorldCom, the government responded to try and prevent it from happening again.
  3. Investing

    Off-Balance-Sheet Entities: An Introduction

    The theory and practice of these entities varies greatly. Investors need to learn what they're getting into.
  4. Investing

    Cooking The Books

    To spot the signs of earnings manipulation, you need to know the different ways companies can inflate their figures.
  5. Options & Futures

    Putting Management Under The Microscope

    We tell you where to find the telltale signs of corporate misdeeds.
  6. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  7. Economics

    Understanding Cost-Volume Profit Analysis

    Business managers use cost-volume profit analysis to gauge the profitability of their company’s products or services.
  8. Fundamental Analysis

    5 Basic Financial Ratios And What They Reveal

    Understanding financial ratios can help investors pick strong stocks and build wealth. Here are five to know.
  9. Investing Basics

    How to Analyze a Company's Inventory

    Discover how to analyze a company's inventory by understanding different types of inventory and doing a quantitative and qualitative assessment of inventory.
  10. Stock Analysis

    Understanding Chipotle's Financials (CMG)

    Learn about Chipotle Mexican Grill and its financial statements, including metrics such as comparable sales, operating margin and returns.
RELATED FAQS
  1. To whom was the term "corporate kleptocracy" first applied?

    The term "corporate kleptocracy" is believed to have originated in a 2004 report by the Special Committee of the Board of ... Read Full Answer >>
  2. What items are considered liquid assets?

    A liquid asset is cash on hand or an asset that can be readily converted to cash. An asset that can readily be converted ... Read Full Answer >>
  3. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>
  4. What are working capital costs?

    Working capital costs (WCC) refer to the costs of maintaining daily operations at an organization. These costs take into ... Read Full Answer >>
  5. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
  6. Who actually declares a dividend?

    It is a company's board of directors who actually declares a dividend. The declaration date is the first of four important ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center