It is the action that is designed to misrepresent an actual financial position or true financial performance of the company. It can be a relatively minor infraction that is done in the company final financial statement. The financial shenanigans are classified into two type that is the scheme of overstating revenues and profits and the scheme of understating the revenue and profits. Companies have many ways to involve in the financial shenanigans if they desire to do so, and the company accountants and the auditors cannot detect it. These ways include: recognizing revenue as premature, documenting the sale of unshipped goods, reclassify balance sheet products to develop income, show the slow pace of depreciation on the asset, set up the imaginary vehicle to reduce or hide debt and many others. This is done in the company to show high performance of the company, but in the real sense, the financial status of the company 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 sales of the computer and its accessories in the world. However, the following table below illustrates the shenanigans actions of the Hewlett Packard Company.
|Does HP have the capability to use this shenanigan? Explain.
|If you suspected HP was using this shenanigan, how would you investigate it?
|On the 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
|Recording revenue too soon
|Yes, sometimes the company record subscription that there is no payment made to increase its sales.
|The company exercise software-as-service sales. However, the customer is recognized if they make the monthly subscription. But the information given in this section is false.
|Recording bogus revenue
|Yes, sometimes the company record unshipped product to increase its sale.
|Some orders in the company sale may be disqualified, but the company documents it as sales.
|Bosting revenue using unsustainable activity or one-time
|Yes, the company record sale that is not paid that leads to high revenue that is documented which not real. In another case the company record low margin hardware at a loss but document those sales as high margin sales of software.
|The company document sales that are not fully settled. However, in some cases, the sale return may occur which not documented in the financial statement.
|Shifting current expenses to the later period
|Yes, the company during the loss period eliminate some expanse in their financial statement to income on balance sheet.
|Some expenses are not included in the financial statement so that they balance income revenue.
|Employing other techniques to hides losses and expenses
|Yes, the company have employed questionable accounting technics, complicated risk metrics, outright fraud and financial engineering to hide losses.
|There is some section that is not included in their annual financial statement, e.g., marketing expenses.
|Shifting current income to a later period
|Yes, the company records its sale even before final requirement is met, thus net income and revenue would be inflated.
|The company does not report all of its financial statement during high sales. Some of the current sales are recorded as unearned income to hide some amount of capital to be in low sale period.
|Shifting future expenses to an earlier period
|Yes, the company record future expense current during the period of high-income revenue to reduce future expense when there is low income.
|Some expenses and debt are settled before the time scheduled.
Therefore the HP Company use the shenanigans to maintain its status on the markets, and confidence from the investors. The management of the company play this shenanigans tricks to maintain the public image of the company and reduce payable tax to the government.
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Yang, K. (2014). Financial Shenanigans: A Deep Look At The Tricks Company Can Play With Its Accounting. Financial Journal.