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Today’s Topics

Today’s Topics. Shenanigan #7 Money Laundering. Shenanigan #7. “The sun’ll come out tomorrow…” How to make your firm’s future sunny Shifting future expenses into today’s operations Key question: why do firm’s do this?. Techniques. Inflating a special charge

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Today’s Topics

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  1. Today’s Topics • Shenanigan #7 • Money Laundering FORENSIC ACCOUNTING - BA124 - Fall 2006 Slide 18-1

  2. Shenanigan #7 • “The sun’ll come out tomorrow…” • How to make your firm’s future sunny • Shifting future expenses into today’s operations • Key question: why do firm’s do this? FORENSIC ACCOUNTING - BA124 - Fall 2006 Slide 18-2

  3. Techniques • Inflating a special charge • In-process research and development • IPR & D • Accelerating use of discretionary reserves FORENSIC ACCOUNTING - BA124 - Fall 2006 Slide 18-3

  4. Inflating Special Charges • The continuing saga of “Chainsaw” Al • Illusion of a successful restructure • How Sunbeam did it • Inflated special charges • Release of reserves in the future • Ultimately, bogus revenue FORENSIC ACCOUNTING - BA124 - Fall 2006 Slide 18-4

  5. Sunbeam’s Red Flags • Excessive post-acquisition charges • Reserve declines • DSO growth • Plummeting cash flow from ops. • Unrealistically high gross margins FORENSIC ACCOUNTING - BA124 - Fall 2006 Slide 18-5

  6. Other Examples • Cisco’s inventory reserve reversal • JDS Uniphase’s goodwill FORENSIC ACCOUNTING - BA124 - Fall 2006 Slide 18-6

  7. In-Process R & D • What is it? • Some real world examples • General Instrument • Compaq • U.S. Robotics • Disney • The bottom line? • Examine these practices closely FORENSIC ACCOUNTING - BA124 - Fall 2006 Slide 18-7

  8. Acceleration of Discretionary Expenses • Prepayments • Reductions in depreciable lives FORENSIC ACCOUNTING - BA124 - Fall 2006 Slide 18-8

  9. Money Laundering • Layering techniques • Soprano’s analogy FORENSIC ACCOUNTING - BA124 - Fall 2006 Slide 18-9

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