𝐓𝐨𝐩 𝐬𝐢𝐠𝐧𝐬 𝐨𝐟 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐬𝐭𝐚𝐭𝐞𝐦𝐞𝐧𝐭 𝐦𝐚𝐧𝐢𝐩𝐮𝐥𝐚𝐭𝐢𝐨𝐧

Financial statements are reports that provide information about a company's financial performance and position. The three main financial statements are the balance sheet, income statement, and cash flow statement. The balance sheet shows a company's assets, liabilities, and equity at a specific point in time. The income statement shows a company's revenue, expenses, and profit over a specific period. The cash flow statement shows a company's cash inflows and outflows over a specific period. Together, these statements provide a comprehensive picture of a company's financial situation and can be used to analyze its performance and make informed decisions about investing in the company. It is not necessary to be a financial market analyst to identify signs of manipulation in companies' financial statements of companies.

➡ Here are 𝐭𝐡𝐞 𝐭𝐨𝐩 𝟏𝟎 𝐬𝐢𝐠𝐧𝐬𝐧 or red flags indicating the presence of manipulation of listing numbers.
 

1.     An increase in the customer balance by a higher percentage compared to sales growth, and an increase in the number of days needed to collect payments from customers (Receivables Collection Days). 

 

2.     A trend of recording large sales at the end of accounting periods (quarterly or annually) and high returns of those sales at the start of each quarter or new fiscal year.

 

3.     The company reports significant revenue and profit growth, while competitors' financial results decline in the same economic environment

 

4.     A situation where the company generates negative cash flow from operations but positive EBITDA 

 

5.     A sector of the company showing a significantly high return on assets (ROA) compared to other sectors, which may suggest manipulation to inflate profit numbers and potential for unsustainable profitability in the future. The importance of this in relation to accounting standard IFRS 8 should be considered

 

6.     Distinguishing between recurring and non-recurring expenses: Some expenses that occur only once, such as restructuring expenses, may not be considered when assessing the company's performance due to their non-recurrent nature. However, if these expenses are repeated, it may indicate that the company is hiding the true strength of its profits

 

7.     Variance in the methods of depreciation and the assumed useful life of assets used by the company compared to industry standards 

 

8.     Establishing objectives that would hinder the administration's ability to function and tying bonuses for senior management to the attainment of a specific profit quota in the current fiscal period  

 

9.     Rising Contract Assets may indicate manipulation of estimates related to long-term contracts as per IFRS 15

 

10.   Capitalizing ordinary business expenses, thus shifting them from the income statement to the balance sheet.

 

The current economic climate may prompt company management to manipulate figures to meet targets, enhance the company's reputation, and appease financial markets and analysts. However, the presence of these signs does not necessarily imply manipulation, but it does indicate the need for a thorough examination of the company's records