For this installment of Investing 101, we’ll take a look at how to spot accounting fraud. It can be found almost anywhere. In some cases, even well-known companies that are publicly traded have deceived investors using calculated dishonesty for financial gain.
Enron is another example of a huge, prominent fraud that took a multi-billion dollar company to bankruptcy in under a year.
Identifying fraud requires being able to spot red flags, something Carson Block, founder of Muddy Waters Research, specialized in.
Block has lately turned his attention to Chinese publicly traded companies like, NQ Mobile, criticizing delays in collecting payments from customers. He says investors can usually find warning signs in a company’s financial statements. "We might see things such as the accounts receivable just seem to be very high," Block says.
Another one of Block's red flags