A Forensic Accounting Expert Explains How Companies Trick Investors

Every week, hosts Joe Weisenthal and Tracy Alloway take you on a not-so-random walk through hot topics in markets, finance and economics.

On the surface, you might think that accounting is straightforward. You add up all your revenues, subtract your costs, and voila, the difference is how much money you made in the quarter. But of course it's not nearly so simple. Companies have all kinds of discretion in how they recognize revenue and costs. Some of this is legit. Some of this is fraud. On this week's episode of the Odd Lots podcast, we speak with Howard Schilit, an expert in forensic accounting and the author of “Financial Shenanigans: How To Detect Accounting Gimmicks & Fraud in Financial Reports.” We talk about the various techniques companies use to disguise their earnings, how accounting rules have failed to keep up with changing times, and what investors can do to spot red flags.

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