Again, via FT Alphaville, we have Howard Schilit’s ten easy ways to cook the books as demonstrated by some well know recent fraud cases. Quite interesting if you happen (like me) to be a financial accounting type :

1. Recording Revenue Too Soon. CA (formerly Computer Associates) improperly accelerated revenue by stretching the end-of-month to 35 days to make the numbers.

2. Recording Bogus Revenue. Global Crossing created fictitious revenue simply by arranging “round-trip” sales with competitors like WorldCom, whereby both parties booked revenue by sales to each other.

3. Boosting Operating Income Through Improper Classifications. Boston Chicken improperly inflated revenue by classifying interest income on loans to franchisees as sales.

4. Boosting Operating Income by Shifting Losses to the Balance Sheet. Enron cleverly used joint venture arrangements to improperly shift losses to accounts on the Balance Sheet.

5. Shifting Current Expenses to a Later Period. AOL inflated income by treating marketing and solicitation costs as an asset and deferring the expense until later periods.

6. Failing to Record Expense Related to Backdated Stock Options. United Healthcare not only hid the tricks used to create the obscene stock compensation to executives but also failed to properly account for it as an expense on its Statement of Income.

7. Shifting Income to a Later Period. Freddie Mae (also called Steady Freddie) improperly shifted billions in derivative gains (to be released into later periods) to help create an illusion of smooth predictable earnings.

8. Shifting Future Expenses to an Earlier Period. Tyco took numerous acquisition-related charges and created reserves that essentially moved future period costs into the acquisition period.

9. Inflating Operating Cash Flow by Treating Normal Period Costs as Capital Expenditures. To hide its deteriorating business, WorldCom recorded normal “line leasing” costs as an asset and failed to disclose this on the Statement of Cash Flows.

10. Hiding Ballooning Debt by Treating Loan as an Asset Sale. As investors began to closely scrutinize ballooning leverage of investment banks, Lehman Brothers hid its problems by “dressing up” its balance sheet and hiding $50 billion in borrowing at quarter end, treating the collateral on the loans as asset sales.

All of which are ones to bear in mind when trying to think like a crook in order to catch the real ones.