Investment Book Review: Financial Shenanigans

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Jae Jun

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Financial Shenanigans – A Book Review

Financial Shenanigans – What Can You Learn?

Financial Shenanigans is so good that Mebane Faber emphasizes checking your company against all the accounting shenanigans described in the book. With the Chinese reverse merger frauds and the social media hype/bubble growing, you will definitely be better off scrutinizing the financial statements and getting into some forensic accounting work. This $23 book is what planted doubt into my mind with CCME and ultimately saved me thousands of dollars.

There is no better book than Financial Shenanigans to jump start your detective accounting work. Of all the accounting books I have read, there is none that is as descriptive, practical and applicable than Financial Shenanigans.

There is a reason why this book is used in business school and the lessons throughout each page is packed with information.

The early edition of the book only focused on earnings manipulation, but the newly revised version includes a section titled cash flow shenanigans and key metric shenanigans which is a huge addition to the book.

Each section introduces you to how GAAP accounting can be played along with a supporting case study to hammer the lesson home.

As you read the book, you’ll realize like myself how amazingly simple it is to manipulate earnings. The author has also opened my eyes into seeing how easy it is to manipulate cash flow.

You’ll continually revisit the classic cases of Enron, Worldcom and Tyco along with plenty of other case studies for each financial shenanigan.

What are some of those lessons? Well take a look at the financial shenanigans Enron was involved in.

Earnings Manipulation Shenanigans

  • Recording revenue too soon
  • Recording bogus revenue
  • Boosting income using one time or unsustainable activities
  • Employing other techniques to hide expenses or losses

Cash Flow Shenanigans

  • Shifting financing cash inflows to the operating section
  • Shifting normal operating cash outflows to the investing section
  • Inflating operating cash flow using acquisitions or disposals
  • Boosting operating cash flow using unsustainable activities

Key Metrics Shenanigans

  • Showcasing misleading metrics that overstate performance
  • Distorting balance sheet metrics to avoid showing deterioration

Want to more? Then buy Financial Shenanigans and read it. You won’t regret it. A $23 investment will increase your knowledge by thousands of dollars. Although the book reads like a case study, the knowledge contained within feels like an encyclopedia.

You’ll be a better detective for it.

Buy Financial Shenanigans from Amazon



  • fanfan

    Hello, many thanks for that book, I ll buy it. Do you think that we can avoid fraudulent companies with the piotroski or altman z-score ? by choosing for example piotroski score >= 5 ..
    At the moment, I have many troubles with chinese stocks and their fraudulent statements…and had lost a lot.. I m thinking to avoid chinese stocks but in the other side, our master ben graham said once that with a good marge of safety, one can invest in something that looks like in speculation at first look..

  • FanFan

    When it comes to China and good financial reporting, it’s a bit of the Wild West (literally!) Unless they have a good track record of reporting or you are confident enough in the management, I’d stay away. A margin of safety also takes management into consideration. Crappy management means a low safety margin. Why risk it?

  • Also consider checking out the book “Creative Cash Flow Reporting” by Mulford and Comiskey for analyzing the quality of cash flows. The book is very dense, much more difficult read than Financial Shenanigans but well worth the time.

  • @fanfan,

    One rule of wisdom that has never and will never be wrong is that, if it looks too good to be true, it probably is. Many of the Chinese companies have numbers that are too good to be true. A very simple check that is proving to be a good method is to check the margins against competitors. There is no way a direct competitor can acheive margins 2-3x greater than competitors.

  • @ Nate,

    I have that book on my shelf as well. On my next list but got intimidated due to the length of the book and detailed material. It’s going to take me a long time to go through it.

  • This is a book I haven’t read yet. I have no idea why I haven’t. But I think now is the time.

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