Accounting (Article Summary)

Accounting (Article Summary)
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Accounting (Article Summary)
It is generally believed that Cash Flow of a company cannot be manipulated therefore it is safe from misrepresentation, but keeping in view certain cases that came to surface in the recent past, it can be inferred that cash flow can be manipulated. There are a number of companies that used different ways to inflate their operating cash flow. The recent case being of WorldCom is a telecom company that inflated its cash flows and earnings for five consecutive quarters (Tergesen, 2002). Companies normally try to inflate their operating cash flows because these represent the ability of a company to produce cash.
In highly crafted misstatements, it is hard to find the evidence against the authenticity of information in the financial statements, but at some instances there are some factors that expose this fact. There are a number of ways through which companies inflate their operating cash flows. Selling receivables is one of those ways which was prominently exercised by Oxford Industries (Tergesen, 2002).
Another way used by companies to inflate operating cash flows is to change the way outstanding checks are accounted for. For example, Aviall which a manufacturer in Dallas inflated its cash flows by showing increased accounts payables. The footnotes in the financial information of Aviall indicated that it wrote checks for an amount significantly larger than the amount actually held by Aviall, thus increasing its overdraft and ultimately accounts payable.
Another way to inflate operating cash flows is trading of securities. Companies take advantage of the accounting regulations regarding security sales and ...