Question

How can managers "manipulate" what is reported on the financial statements to make the company look better than it really is?

Answer 1

Managers manipulate the financial statements of the company in order to inflate current period earnings with false revenues, or by deflating current period expenses. Several techniques can be used by managers to alter a company’s financials such as income statements, balance sheets and cash flows.

• Recording revenue before it is earned
• Recording artificial revenue
• Increment in income with one-time gains
• By Shifting of current expenses to diferent period i.e., an earlier or later period
• Fail to record or reduce liabilities improperly
• Shifting revenue of current period to a later period
• Considering expenses of future to the current period.

Financial statement manipulations sometimes occurs during mergers and acquisitions, when management make believe all parties that the earnings per share of the companies combined together will improve. Management uses misleading information & data to come up with their numbers.