---
title: "Financial Shenanigans: Cash Flow & Key Metrics Shenanigans (Part 3)"
description: "In the previous post I mentioned the brief summary of Earnings Manipulation shenanigans."
publicationDate: 2017-04-30
category: "Audit & Forensics"
authorName: "Lavneet Bansal"
originalPublication: "Audit Monk"
originalUrl: "https://auditmonk.wordpress.com/2017/04/30/financial-shenanigans-cash-flow-key-metrics-shenanigans-part-3/"
featuredImage: "/images/auditmonk/financial-shenanigans-cash-flow-key-metrics-shenanigans-part-3.webp"
draft: false
tags:
  - "Accounting Manipulations"
  - "Financial Statement Fraud"
---

In the previous post I mentioned the brief summary of Earnings Manipulation shenanigans.
Below is the summary of some methods used to manipulate cash flow & key metrics in financial statements as identified by Howard Schilit in his book Financial Shenanigans.

<h6>Cash Flow Shenanigans:</h6>
<strong>1. Shifting financing cash flow to operating section</strong>
<ul>
	<li>Recording bogus cash flow from operations (CFFO) from a normal bank borrowing</li>
	<li>Boosting CFFO by selling receivables before the collection date</li>
</ul>
<strong>2.&nbsp;Shifting normal operating cash outflow to the investing section</strong>
<ul>
	<li>Inflating CFFO with boomerang transactions</li>
	<li>Improperly capitalizing normal operating costs</li>
	<li>Recording the purchase of inventory as an investing outflow</li>
</ul>
<strong>3.&nbsp;Inflating operating cash flow using acquisitions or disposals</strong>
<ul>
	<li>Inheriting operating inflows in a normal business acquisition</li>
	<li>Acquiring contracts or customers rather than developing them internally</li>
	<li>Boosting CFFO by creatively structuring the sale of a business</li>
</ul>
<strong>4.&nbsp;Boosting operating cash flow using unsustainable activities</strong>
<ul>
	<li>Boosting CFFO by paying vendors more slowly</li>
	<li>Boosting CFFO by collecting from customers more quickly</li>
	<li>Boosting CFFO by purchasing less inventory</li>
	<li>Boosting CFFO with one-time benefits</li>
</ul>
<h6>Key Metrics Shenanigans:</h6>
<strong>1.&nbsp;Showcasing misleading metrics that overstate performance</strong>
<ul>
	<li>Highlighting a misleading metric as a surrogate for revenue</li>
	<li>Highlighting a misleading metric as a surrogate for earnings</li>
	<li>Highlighting a misleading metric as a surrogate for cash flow</li>
</ul>
<strong>2.&nbsp;Distorting balance sheet metrics to avoid deterioration</strong>
<ul>
	<li>Distorting accounts receivable metrics to hide revenue problems</li>
	<li>Distorting inventory metrics to hide profitability problems</li>
	<li>Distorting financial asset metrics to hide impairment problems</li>
	<li>Distorting debt metrics to hide liquidity problems</li>
</ul>
<strong>Few red flags associated with cash flow &amp; key metrics manipulations:</strong>
<ul>
	<li>Disclosures about selling receivables with recourse</li>
	<li>Changes in the wording of key disclosure items in the financial reports</li>
	<li>Providing less disclosure than in the prior period</li>
	<li>Unexpected increase in capital expenditures</li>
	<li>Investing outflows that sound like a normal cost of business</li>
	<li>Declining free cash flow while CFFO appears to be strong</li>
	<li>New categories appearing on the statement of cash flows</li>
	<li>Selling a business, but keeping the related receivables</li>
	<li>Accounts payable increasing faster than cost of goods sold</li>
	<li>Changing the definition of a key metric</li>
	<li>Increases in receivables other than accounts receivable</li>
	<li>A huge decline in debtor turnover ratio following several quarters of growing receivables</li>
	<li>Stopping the reporting of certain key metrics</li>
</ul>
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