Due to the lack of the financial concepts, I reviewed the basic definition of the accounting equation, which is Assets = Liabilities + Shareholder Equity. Problems happen when imbalance of this equation occurs. And then I start to wonder, since it is not my ambitious to become a well-trained accounting professional, or CFO, what else I can do with the financial functions in the ERP systems besides accounting objective. I accidentally came across this article which intrigued me to think a lot more than the daily accounting routines.
In the article ,“Financial Statement Manipulation An Ever-Present Problem For Investors“, the author Troy Adkins introduced a long existing problem, almost since the start of the economic behaviors happened among human beings; people have been manipulated financial statement for different purpose. Adkins explains four reasons why financial statement manipulation thrives in the modern economy: management of the company encouraged to do so by the company structure, the flexibility of GAAP standards, the interest conflicts between being an independent auditor and a company client. The author also summarized several accounting processes that were categorized into seven categories from Dr. Schilit’s publication “Financial Shenanigans” (2002), as some basic guidelines of manipulation that investors can start to pay attention to.
For example, item one from the third category is “Increasing profits by selling assets and recording the proceeds as revenue”. A vivid recent example is Yahoo. This process makes the company assets decrease while the managers increase their bonus. This is a sign for investors to be aware of.
Of course there is no way an IPO company will ever allow their investors to login their ERP systems and check what’s going on inside, still it would be interested if we know how to identify these symptoms from ERP aspects.
Check out the White-Collar Hacking Context for further information on this topic: http://www.whitecollarhackingcontest.org