Subject. The article considers the reasons and tools for manipulation of financial statements and ways to identify it. Objectives. The purpose of the study is to reveal preconditions and the main instruments of misstatements of financial reporting. Methods. The study employs empirical and logical constructions, analysis and synthesis, generalization, systems approach, methods of comparative analysis. Results. I show the main ways of misstatements of financial reporting and formulate mechanisms to detect them. The findings can be useful for enhancing the financial accounting standards, as well as for all interested stakeholders of enterprises that use financial statements. Conclusions. The absence of adequate responsibility of auditors and appraisers involved in the preparation and confirmation of reporting contributes to the practice of misrepresentation of financial statements. On the one hand, a company hires appraisers or auditors and pays for their services, and the latter have no motivation to engage in any confrontation with the company that manipulates its financial statements. On the other hand, companies, pursuing various goals (meeting the KPIs by managers or in the run-up to the M&A transaction), apply window dressing and manipulate their financial statements, using a wide range of tools, like revenues reposting, provisions for impairment, reclassification of costs from the operating cost to capital cost category, etc.
Keywords: financial statement manipulation, reserve for doubtful debts, impairment of assets, contingencies, non-disclosure of revenue
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