I am writing this post in to highlight a recent article in the Edge Malaysia. It is an interesting look at financial fraud and how to spot it. Financial fraud has plagued public companies all over the world and Malaysia is no exception. Some of you may remember the big names such as Enron which saw many investors lose all their money as well as employees who lost their retirement benefits. So how can an ordinary investor protect him/herself? One of the ways is to conduct some DIY financial statements forensics.

Follow The Money

“Follow the money” is a simple term which refers to tracking the cash flow. The reason is simple, while earnings are easily manipulated by accrual accounting i.e. early recognition of revenue, misstating of expenses etc., operating cash flow is a more persistent measure of company performance.  As a rule of thumb, there should ...