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Forensic Accounting, Forensic Techniques, and Fraud Detection Copyrighted 2001 D. Larry Crumbley, ... - page 216 / 352

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© D.L. Crumbley

More Red Flags

Look for aggressive revenue recognition policies (Qwest Communication, $1.1 billion in 1999-2001). Beware of hockey stick pattern.

Beware of the ever-present nonrecurring charges (e.g., Kodak for past 12 years).

Check for regular changes to reserves, depreciation, amortization, or comprehensive income policy.

Related-party transactions (e.g., Enron).

Complex financial products (e.g., derivatives).

Unsupported top-side entries (e.g., WorldCom).

Underfunded defined pension plans.

Unreasonable management compensation.

Source: Scott Green, “Fighting Financial Reporting Fraud,” Internal Auditor, December 2003, pp. 58-63.

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