Question

Do you think companies can manipulate their Statement of Cash Flows? If so, what do you think are some of the top ways in which companies could manipulate it?

Answer 1

Yes it can easily be done. Companies can easily change their cash flow statement.

Some of the ways in which the companies manipulate their cash flow statement are:

1. Misusing non operating cash: a company can make subtle changes in its cash inflow and outflow of their operating that re not related to the business such as stock trading. It can easily manipulate the non operating cash balance as per the need and it will be easily deducted by the anyone.
2. Changing account payable: the company has to decide when to recognize the payments done under accounts payable by them and if the company wants to show higher cash balance , it might not deduct the amount from account payable account until the amount is deducted from the bank and be misleading.
3. Changing receivables and cash: it cans also manipulate the funds coming into the firm and have impact on the working capital account. The cash flow is determined by the working capital changes too. And the company can inflate its cash flow by recognising the funds inflow and not the funds leaving the firm thus increasing cash balance.
4. Selling the accounts receivable : a company can sell its receivable to an outside company as a whole and use this to manipulate the cash flow, as it will shorten the time or which the receivable is kept and increasing the cash balance for a short period of time.