How accounting scandals help an investor

World of accounting is very vast and can expect any fraudulent manipulations at any time. Accounting fraud and related bankruptcy is a nightmare for every investor. It is your duty to detect and shield yourself from such possible incidents with any of the companies you are planning to invest.

For a value investor, financial statement analysis is most important to identify the status of a company to invest. Financial statements are the best friend for value investors because, it burying all the valuable information that an investor required to know about a business before investing to it. Some of this hidden information’s are the future profit possibility, management efficiency, operational ability etc… A perfect analysis helps an investor to get accurate information’s to avoid possible investing errors. Analyzing financial statements required little more than average numerical skills and good understanding on each and every terms presented in it.It is a best practice, collecting and recording the details of all the happened major accounting frauds especially, the information about each section in their financial statements where used to manipulate to conduct such frauds. This practice will help you to give additional attention to similar areas to any financial statements that you are analyzing with an intention to invest on the company.Tracking the information as above mentioned, enable to detect the weak areas in a financial statement where a possible fraudulent manipulation can happen. This would give you additional safety because of taking extra care on such areas.Always prefer perfect companies who maintaining excellent accounting standards. Never invest on any company that has former accounting fraud history or facing any legal action from the authorities due to the same. We have enough examples on account frauds and related bankruptcy. Enron, WorldCom and recently, Satyam in India are some of the best examples.As a value investor, I strongly believe, we are getting golden opportunities to learn a lot from past and present accounting frauds. If you dig more into the stories and financial statements of such companies, who committed account frauds and bankrupted, you will certainly reach to the major mistakes they have committed with their financial statements. That is your treasure. Don’t miss it.


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