It is the action designed to misrepresent the company’s actual financial position or true financial performance. It can be a relatively minor infraction that is done in the company’s final financial statement. The financial shenanigans are classified into two types: the scheme of overstating revenues and profits and the scheme of understating the revenue and profits. Companies have many ways to be involved in financial shenanigans if they desire to, and the company accountants and the auditors cannot detect it.
These ways include recognizing revenue as premature, documenting the sale of unshipped goods, reclassifying balance sheet products to develop income, showing the slow pace of depreciation on the asset, setting up the imaginary vehicle to reduce or hide debt, and many others. This is done in the company to show its high performance, but in the real sense, the company’s financial status is low. However, in other cases, the company may reduce its income revenue to reduce tax payable to the government.
In this case, my company of choice is Hewlett-Packard Company (HP). It is one of the leading manufacturers and salespeople in the world of computers and accessories. However, the table below illustrates the company’s shenanigans.
| Number | Shenanigan | Does HP have the capability to use this shenanigan? Explain. | If you suspected HP was using this shenanigan, how would you investigate it? | On a scale of 1-10, with t
Ten being the highest, attach the score that indicates the extent to which HP might benefit from this shenanigan |
| 1 | Recording revenue too soon | Yes, sometimes the company records a subscription for which no payment is made to increase its sales. | The company exercises software-as-service sales. However, the customer is recognized if they make the monthly subscription. However, the information given in this section is false. | 8 |
| 2 | Recording bogus revenue | Yes, sometimes the company records unshipped products to increase its sales. | Some orders in the company sale may be disqualified, but the company documents it as sales. | 7 |
| 3 | Boosting revenue using unsustainable activity or one-time | Yes, the company records sales that are not paid which leads to high revenue that is documented which is not real. In another case the company records low-margin hardware at a loss but documents those sales as high-margin sales of software. | The company documents sales that are not fully settled. However, in some cases, a sale return may occur that is not documented in the financial statement. | 4 |
| 4 | Shifting current expenses to the later period | Yes, the company eliminated some expanse in its financial statement to income on the balance sheet during the loss period. | The financial statement does not include some expenses, so they are balanced with income revenue. | 6 |
| 5 | Employing other techniques to hide losses and expenses | Yes, the company has employed questionable accounting techniques, complicated risk metrics, outright fraud, and financial engineering to hide losses. | Some sections are not included in their annual financial statement, e.g., marketing expenses. | 5 |
| 6 | Shifting current income to a later period | Yes, the company records its sales even before the final requirement is met thus net income and revenue would be inflated. | The company does not report all of its financial statements during high sales. Some current sales are recorded as unearned income to hide some capital during a low sales period. | 6 |
| 7 | Shifting future expenses to an earlier period | Yes, the company records future expenses during periods of high revenue to reduce future expenses when there is low income. | Some expenses and debts are settled before the time scheduled. | 9 |
Therefore, HP Company uses shenanigans to maintain its market status and increase investors’ confidence. The company’s management plays these shenanigans tricks to maintain the company’s public image and reduce payable tax to the government.
References
Alaverez, F. (2015). Financial Statement Analysis.
Bort, J. (2012). How Autonomy Allegedly Cooked The Books, According To HP. Business Journal.
Charles Mulford, E. C. (2015). Creative Cash Flow Reporting.
Schilit, H. (2014). Financial Shenanigans.
Vallabhaneni, R. (2000). Corporate Management, Governance and Ethics Best Practices.
Yang, K. (2014). Financial Shenanigans: A Deep Look At The Tricks Company Can Play With Its Accounting. Financial Journal.
