Advanced Forensic Financial Analysis

By Michael F. Rosplock, CFE

Part one

To stay ahead of financial statement fraud, fraud examiners must step up to a new level of analytical comprehension and intellect to uncover the latest devious techniques. 

(This article is reprinted with permission from the June 2001 issue of National Association of Credit Management's Business Credit magazine.)  




Financial statement fraud is "a new kid on the block," and the intent to conceal and take advantage by false suppression of the truth of assets, liabilities, cash flow, sales and profitability is creating a new level of risk for corporate America. Fraud examiners must have a new level of analytical comprehension and intellect to uncover the devious techniques.

The threat of financial fraud has greatly impacted the corporate community worldwide. The fraud examiner of the future must also be able to cope with the adverse conditions related to Initial Public Offerings (IPOs), mergers, recapitalization, leverage buyouts, chapter 11 bankruptcies, and economic turmoil and volatility. Those companies falling into the category of high risk are affected by the following conditions:

Weak Solvency - weak liquidity ratios, highly leveraged condition, and overcapitalization.

Weak Efficiency - slow turnover of accounts receivable, accounts payable, and inventory, or substantially inadequate cash flow/working capital to sustain growth and/or reinvestment.

Weak Profitability - deviations in profitability or unprofitability.

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