Friday, February 8, 2013
With Caterpillar's $580 million write-down on its acquisition of a Chinese company whose books turned out to be less than totally reflective of what was really going on, accounting frauds are in the news. Here are two good sources on how it's done:
- An interview with Paul Gillis, professor of accounting at the Guanghua School of Management at Peking University.
- An article by Naomi Rovnick, "The Simplicity of Chinese Accounting Scandals," at the Quartz web site.
The main point here is that Chinese accounting scandals generally don't involve complex schemes to dress something up as something else; they usually just involve out-and-out lying and deception, such as saying you have cash when you don't, or claiming that you just got a huge order from a customer when the supposed customer doesn't even exist.