Redflags of Financial Statement Frauds: M. Joshi 2013

Redflags of Fin Statement FraudsI was inspired to read this book as part of my continuing education in Corporate Governance and Directorship.

I was quite interested in learning more about about Financial Statement Fraud, but was worried that this topic would not be terribly exciting to read. I decided to first read “The Martian” by Andy Weir, with the personal commitment that I would explore Financial Statement Fraud as soon as I finished exploring Mars with Mark Watney. I found “The Martian” to be thoroughly enjoyable, exciting, and suspenseful; three adjectives which I doubted would apply to Mayur Joshi’s book.

“Redflags of Financial Statement Frauds” proved to be quite interesting and not too difficult to read. It certainly wasn’t as exciting as “The Martian”, but Joshi did a decent job of discussing different types of Financial Fraud and the signals that Auditors should watch for which might indicate fraudulent activities or intent.

Joshi actually wrote this book specifically for Indian Auditors. I was pleased to see a non-western perspective on Accounting and Auditing. I’m confident that Indian accountants and managers are no less creative than their western counterparts when it comes to “cooking the books”.

At times I did find the English grammar and composition to be a bit “unusual”. I think it would be unfair and perhaps inaccurate to accuse Joshi of poor grammar. However, Indian English is certainly a bit different than British, Australian, or American English.

“Redflags of Financial Statement Frauds” is only 80 pages long (based on my iBooks page formatting preferences). Thus, Joshi doesn’t waste any time or text on unnecessarily long explanations. This book is very direct, and each topic is introduced and explained as briefly and succinctly as possible. I found this approach to nicely satisfy my immediate expectations. It wasn’t my desire to become an expert on Financial Statement Fraud, but I did want to learn more about typical types of such fraud, and the warning signs of fraudulent activities and intent.

At times I did find myself wishing that Joshi had added a bit more detail or provided better examples of fraudulent entries. Clearly, it wasn’t Joshi’s intent for his book to be a handbook on best practices for committing Financial Statement fraud. However, I think he could have been a bit more generous with details, and I think this would have made the book both more interesting as well as informative.

In the chapter on “Improper Asset Valuations”, Joshi writes that “Profits can be inflated by increasing asset values.” I found this to be an interesting statement, and spent quite a bit of time trying to figure out how this could be possible. After some thought, I realized that profits can be increased by booking expenses as assets. These “expense assets” are then depreciated over several accounting periods instead of being immediately recognized, thereby increasing profit. This is one of many occasions when I would have preferred Joshi to have offered more detail to better explain the process of fraudulent accounting entries.

“Redflags of Financial Statement Frauds” is a short, inexpensive book which I would recommend to non-accounting professionals interested in Accounting Fraud. Though I do not recommend this book for accounting professionals, I must also advise that familiarity with basic accounting practices and terminology is a minimum requirement to appreciate this book.

I trust that the people who follow my posts are only interested in discovering and preventing fraud, as opposed to best practices for successfully committing fraud.

Frank T.