Module 09 · Forensic Accounting & Red Flags¶
What this module does. Teaches scepticism as a procedure: why and how numbers get bent (incentives, the fraud triangle, Schilit's taxonomy); revenue, expense/asset and cash-flow red flags with their balance-sheet marks; India's governance signals with base rates; the scoring models (Beneish, Altman, Piotroski, accruals) run on Kaveri; and a 40-point checklist that produces a RAG verdict and a four-part response — adjust, discount, monitor, escalate.
Why it matters. Every valuation assumes the inputs are honest. The cases in Module 13 — Satyam, Enron, Wirecard, DHFL, Manpasand — show what happens when they are not, and that the marks were visible years in advance to anyone who looked.
Lessons¶
| # | Lesson | One line | Time |
|---|---|---|---|
| 09.1 | Why and how numbers lie | The spectrum; incentives; the taxonomy; who catches fraud; the forensic mindset | 70 min |
| 09.2 | Revenue red flags | Techniques and their receivables marks; Kaveri's receivables adjudicated | 80 min |
| 09.3 | Expense & asset red flags | Capitalisation, CWIP, lives, provisions, inventory, SG&A, goodwill | 75 min |
| 09.4 | Cash-flow games | Reclassification, supplier finance, the Satyam interest test, cash that left, standalone vs consolidated | 75 min |
| 09.5 | Governance red flags in India | The signals ranked; stated vs actual holdings; the operator pattern; SEBI/NFRA as data | 70 min |
| 09.6 | Forensic scoring models | Beneish, Altman, Piotroski, accruals, C-score, Dechow — with the tools | 90 min |
| 09.7 | The forensic checklist | 40 items, scoring, RAG; Kaveri = Amber (18) | 90 min |
Connections¶
- Back: 04.7, 05.6, 03.3.
- Forward: the checklist feeds the memo (11.3), sizing overlays (11.4) and the capstone template; the cases I1, I14, G4, G9.
- Tools:
tools/fi/forensics.py(beneish_m,altman_z,piotroski_f,accruals_ratio,cash_yield_check,forensic_summary).
You're ready to move on when you can…¶
- Place a company on the conservative → fraudulent spectrum with evidence and name the incentive.
- Run the receivables tests (DSO, growth ratio, ageing, coverage, DSRI) and adjudicate between mix, credit, recognition and fabrication.
- Find capitalised costs, CWIP ageing, provision releases and inventory games in the notes.
- Apply the interest-on-cash test and the cash-rich-but-borrowing test, and compare standalone with consolidated.
- Rank governance signals and search SEBI orders for a promoter.
- Compute Beneish, Altman and Piotroski for any company with the tools and state the mapping.
- Complete the 40-point checklist with page references and write the four-part verdict.
Tested by: Mock 4 — Forensics & sectors.