Forensic Financial Statement Analysis Using AI

Explore the audit report and the MD&A to understand how financial statements are reported, the role of big four auditors, and how footnotes and future outlook shape analysis.

Explore how audit reports are structured, including introduction, management's and auditor's responsibilities, opinion, and critical audit matters, with a focus on internal controls and independence.

Compare Nvidia's 2023 and 2024 10-K audit reports by answering questions 1–3, and explore access options on Nvidia's site or saic.gov.

Identify the auditor and compare the 2024 and 2023 NVIDIA 10-Ks, confirming PwC, and calculate a 0.141 million increase in consolidated inventory from 2023 to 2024.

Explore why auditors refuse to bless financials by examining fraud risk, governance concerns, legal penalties, and reputational risk, with examples of major audit failures and 10-K timing.

Analyze SMCI's audit issues by completing exercise 2.6: review the NT 10-K, 10-Q, and 8-K filings from specified dates, answer three questions, and review feedback.

Identify true statements in smci’s audit issues exercise, including nt 10-k unable to file, Charles Lang as chairman, missing auditor name, and internal controls, plus unaudited 10-q and 8-k resignations.

Practice AI-assisted audit report analysis by evaluating Apple's latest and prior 10-Ks, scoring questions, assessing independence and critical matters, and producing executive summaries and detailed reports.

Explore management's discussion and analysis (mDNA) in a 10-K, covering what happened, why it happened, and what might happen next, with a business overview, financial performance, risks, and future plans.

Analyze Berkshire Hathaway’s MD&A in its February 2024 10-K, explore its breadth relative to other firms, and answer three questions based on the first ten pages.

Access Berkshire Hathaway md&a in the sec.gov 10-k to compare 2023 and 2022 net earnings and insurance underwriting, including Burlington Northern Santa Fe track details.

Analyze Apple’s mDNA using the 10-K, identifying main drivers like iPhone and services, and assess margins, currency effects, liquidity, and debt.

Complete the five-question quiz on the audit report and MD&A, review explanations after each answer, and use the auto report; then note the 23% increase before the income statement analysis.

Explore income statement analysis from basics to advanced concepts, including revenue recognition, disclosure, depreciation, restatements, and GAAP vs non-GAAP earnings, with hands-on company analysis and a one-page summary and reports.

Learn revenue recognition timing, assess fraud risks with days sales outstanding, trend and ratio analysis, deferred revenue, and quality of earnings ratio for forensic financial statement analysis using ai.

Analyze a company's accounts receivable and days sales outstanding from Apple’s latest 10-K income statements, compute DSO, assess the trend, and assign a sector-based rating in this hands-on exercise.

Explore how percentage of completion revenue recognition can be manipulated through four methods, and examine deferred revenue and bookings to gauge future revenue pipelines.

Open the 12 most recent 8-Ks, extract revenue and deferred revenue from the income statement, compute bookings, chart the results, and assess seasonality and quarter-to-quarter changes.

Analyze how revenue recognition shifts from license to subscription terms impact revenue visibility in the footnotes. Examine Fluor’s 2003 expense understatement and 2019 audit disclosures to illustrate critical audit matters.

analyze Apple’s revenue recognition in the latest annual report by downloading or pasting the report into Word and uploading it to ai to detect changes in rev and expense recognition.

Reducing revenue disclosure can be a red flag. The lecture shows how condensing revenue lines and shifting recognition from delivery to shipment may hide slowing growth.

participate in an interactive exercise evaluating revenue disclosure deterioration by reviewing attached notes and sources, scoring the risk, and noting that Apple's disclosures remain consistent and transparent.

Analyze how expense disclosures can be manipulated to inflate profits, and identify four detection steps: compare expenses, spot unusual drops, examine new categories, and review policy changes and footnotes.

Analyze whether a company's expense disclosure deteriorates by reviewing the income statement and 10-K. Compare SG&A breakdowns, whether separate or combined, to assess transparency, as shown in the Apple example.

Learn to separate organic from non-organic revenue growth by analyzing acquisition-driven expansion, using disclosures to model organic and non-organic growth, and assess risks if acquisitions slow.

Explore whether organic revenue deterioration is masked by acquisitions, analyzing an exercise showing 2% year over year growth driven by services while iPhone sales remain flat.

venture-backed firms grow quickly and ipo to fund growth, but revenue decelerates as they mature; monitor new product launches and growth, and include 8-k and 10-k disclosures in financial models.

Explore what percentage of revenue comes from new products or markets, why growth often decelerates, and how Apple's non-disclosure and DOJ acquisition limits affect growth signals.

Explain how accounts receivable and the allowance for doubtful accounts affect earnings under GAAP, and illustrate how cookie jar accounting and earnings smoothing mislead investors with Worldcom and Microsoft.

Use an AI tool to assess major changes in sales, returns, and allowances. Paste results, confirm no material changes or concerns, and rate the exercise ten out of ten.

Analyze year-over-year and quarter-over-quarter changes in revenue and expenses. Evaluate expense trends as a share of revenue, compare to industry peers, and assess revenue recognition changes and phantom revenue.

Analyze revenue trend and changes in revenue recognition from exercise 3.1.19, noting margins rise as software and services profitability grows, with no rev rec policy changes in 2024.

Review past earnings restatements to distinguish legitimate corrections from fraud, examine footnotes, and assess SEC actions, impact on profitability, and investor confidence.

Assess if a company recently restated earnings using AI prompts, verify Apple did not restate, and demonstrate using paste special and web search to reach a conclusion.

Analyze non-recurring items and their profitability impact, including restructuring charges and cookie jar accounting, to identify earnings management and understand true profitability.

Explore non-recurring items and their profitability impact in forensic financial statement analysis using AI, including assessment of large items like a one-time restructuring charge.

Explore how changing depreciation methods, from double declining balance to straight line, can manipulate profits, and spot footnotes red flags, as in Hertz 2013.

Apply forensic financial statement analysis to assess changes to depreciation accounting by evaluating whether depreciation policies changed, recognizing the use of straight-line depreciation, and spotting red flags in the exercise.

Explore GAAP versus non-GAAP measures, potential misrepresentation, SEC oversight, and FASB's proposals to standardize KPIs like EBITDA and free cash flow.

Compare GAAP and non-GAAP accounting, and analyze earnings quality ratios and accruals ratios to see how one-time and non-cash items affect cash flow and net income.

Examine segment reporting to reveal revenue and profit sources across units, regions, and verticals, spotting red flags and reinforcing transparent disclosures under US GAAP ASC 280 and IFRS 8.

Analyze segment reporting to compare revenue shares and year-over-year changes, noting services' largest growth and iPad and wearables decline, with margins boosted by high-margin services.

Analyze geographic reporting to assess performance effects across geographies, tracking year-over-year revenue changes and recognizing one-off spikes, with attention to foreign exchange hedging in footnotes.

Explore vertical reporting and its impact on performance, and learn to limit exposure to any vertical to 20% and one stock to 5% across sectors like healthcare, retail, and technology.

Access the income statement quiz, complete all five questions, review why answers are right or wrong, and update your progress by checking the B9 checkbox.

Assess the balance sheet and cash flow statement to reveal assets, liabilities, and equity while spotting red flags via forensic analysis and ratio trends.

Apply forensic analysis to acquisitions by reviewing balance sheets, cash flow statements, and footnotes to detect asset overvaluation, learning from Rio Tinto’s Riverdale Mining and Time Warner’s America Online cases.

Apply ai-driven forensic financial statement analysis in exercise 3.2.3 to examine the latest annual report and 10-K, determining whether acquisitions caused asset overvaluation through guided prompts and impairment checks.

discover how inventory growing faster than revenue signals liquidity issues and how the working capital ratio, current ratio, and quick ratio reveal a company's true liquidity.

Assess whether inventory grows faster than revenue by analyzing balance sheet data and 10-K filings, validating figures against official sources and correcting misstatements.

Compare lifo, fifo, and average cost inventory methods, noting IFRS restrictions on lifo, inflation effects, and how write-downs, reserves, and cookie jar accounting shape reported profits.

Analyze LIFO versus FIFO in inventory valuations and assess changes to write-downs, noting Apple maintains FIFO with no policy change or material write-downs.

Analyze accounts receivable growing faster than revenue to assess cash flow risk, using accounts receivable turnover ratio and DSO, with Under Armour and FTX examples.

Evaluate whether accounts receivable grows faster than revenue in this exercise. AR rises faster than sales, with rising DSO and accounts receivable turnover indicating possible cash-flow risk and credit-management concerns.

Analyze whether inventory grows faster than revenue and COGS, assess turnover, watch for write downs or changes in accounting methods, and learn from Krispy Kreme's restatement.

Analyze whether inventory grows faster than cogs and assess changes in inventory turnover, potential write-downs or reserves, and overstock and obsolescence risk indicators in footnote analysis.

Explain mark-to-market accounting on the balance sheet, its impact on assets, liabilities, and earnings, and compare US GAAP historical cost with IFRS revaluation for fixed assets.

Examine mark-to-market income on the balance sheet, assess material MTM changes in assets and liabilities, and compare MTM gains against derivative losses with a note to review the annual report.

Analyze how operating leases now appear on the balance sheet with right-of-use assets and lease obligations under post-2019 rules, and examine capital leases and related misrepresentation indicators.

Analyze how operating and capital leases are accounted for, focusing on right of use assets and lease liabilities, and how estimates of interest rates affect reported assets and potential misstatements.

Assess changes or omissions in balance sheet disclosures by reviewing footnotes, reserves, impairment, and off balance sheet items; compare periods and ratios to uncover hidden liabilities.

Assess whether the company changed or omitted balance sheet disclosure, focusing on off balance sheet commitments like manufacturing and other unconditional purchase obligations and their cash flow impact.

Perform forensic analysis of the equity section by tracking treasury stock, apic, common and preferred shares, retained earnings, and aoci to detect misstatements.

Analyze changes in equity on the balance sheet by examining treasury stock purchases, retained earnings deficit swing, and accumulated other comprehensive income, with emphasis on Apple's 2024 buybacks and risks.

Compare cash flow from operating activities with net income to assess true cash generation and detect earnings manipulation. Analyze working capital changes, non-cash adjustments, and footnotes to uncover hidden risks.

Analyze cash flow from operations against net income, noting depreciation, amortization, stock-based compensation, changes in working capital, and one-time items to judge earnings quality.

Explore cash flow from operations, investing, and financing, including capex, free cash flow calculations, ebitda as a proxy, and red flags from investing cash flow, with Caterpillar and Oracle examples.

Examine cash flows from investing and financing, noting a 2.9 billion inflow from investing and 122 billion in financing outflows driven by dividends and buybacks, with growth versus value considerations.

Engage with the balance sheet and cash flow statement through Exercise 3.2.24, complete the quiz, and check cell B9 to reach 75% completion before exploring footnotes in section 4.1.

Explore footnotes in financial statements, including the income statement, balance sheet, and cash flow details, with Oracle 10-K examples and the ten major footnote categories to clarify numbers.

Explore significant accounting policies, the first footnote, covering revenue recognition, inventory methods (FIFO, LIFO, average cost), depreciation, asset and liability classification, and policy changes.

Explore footnote category 1 of ten significant accounting policies, examining revenue recognition, FIFO inventory valuation, straight-line depreciation under PPA, and asset-liability classifications using AI-assisted document review.

Explore short-term and long-term debt in footnotes, compute interest coverage via ebitda, and classify leases as capital or operating using five criteria.

Analyze footnote category 2/10 debt and leases using AI to determine five-year debt maturities and assess Apple's ability to repay, supported by Apple fiscal year 24 data.

Analyze how tax footnotes disclose current and deferred taxes and the effective tax rate. Highlight reconciliations, Oracle's R&D credits, and foreign and state taxes, plus deferred assets and liabilities.

Analyze footnote category three income tax disclosures, including a $10.2 billion one-time charge from the EU state aid decision and rising unrecognized tax benefits signaling tax exposure.

Analyze defined contribution and defined benefit pension plans, including underfunded pensions, OPEB, and the related costs, investment strategies, and future contributions.

Examine footnote category four on employee benefits, noting Apple uses defined contribution retirement plans and share-based awards with no significant pension liabilities or underfunded post-retirement benefits.

Explore how goodwill arises from acquisitions and undergoes impairment testing, and how intangible assets such as trademarks, brand names, patents, and contract-based rights are recognized and amortized or impaired.

Explore footnote category five on goodwill and intangible assets, noting no goodwill on the balance sheet and acquisition-related intangibles, straight-line amortization, and impairment status in 2024.

Learn fair value measurements across level one to level three, from active markets to hard-to-value assets, and how sensitivity analysis informs valuations as noted in footnotes.

Analyze fair value measurements in footnote category 6/10, focusing on level three. Review Apple's cash marketable securities across level one, level two, and minimal level three, then submit the ten.

Explore segment reporting in footnotes to analyze revenue, expenses, and margins by product and geography, with year-over-year trend analysis and competitive benchmarking.

Analyze footnote category seven on segment reporting by evaluating Apple's geographic revenue mix across five regions and identifying balanced disclosures and concentration risk while considering tariffs and regional GDP growth.

Discover how footnote contingencies and legal proceedings reveal major lawsuits, including shareholder derivative cases and cloud litigation, and how audits assess reserves and risk without major financial impact.

Review footnote category eight on contingencies and legal issues, noting Apple faces no material loss risk and a nine level of concern on the EU tax matter.

Explain how fair value hedges, cash flow hedges, and net investment hedges use derivatives like swaps, options, and futures to protect balance sheets and cash flows.

Analyze derivatives and hedging activities, including foreign currency forwards and options to hedge non-US dollar exposure, and review Apple's value-at-risk analysis and a two-billion-dollar derivative loss.

Analyze footnotes on acquisitions to assess the purchase price breakdown, debt, goodwill, and intangible assets, and how they affect revenue, profits, and risks, including contingent liabilities and earnings manipulation.

Analyze the acquisitions footnote using Apple as an example, noting no goodwill and straight-line amortization of intangibles. Conclude with an executive summary and a final score of 8.72/10.

Explore finance lessons from Wall Street, including trading floor dynamics, insider trading risks, buy side vs sell side, and the ethics and realism of stock market practices.

Access the footnotes analysis quiz for section 4.1, answer each question, review explanations, and update the checkbox to boost your quiz score from 75% toward 96%.

Adjust weightings in settings to see how the executive summary score shifts with cashflow and balance sheet analysis, then print or save a PDF report.

Print and export the 24-page detailed report, navigate sections with page numbers, and generate a pdf of the forensic financial statements (income statement, balance sheet, cash flow, footnotes) with conclusions.

Access and detail every term and definition from section 5 (what, why and how), using an alphabetically sorted term list you can print or save as PDF.

Celebrate completing the course and learn to access the latest content via get latest version, track version 2.1, and share feedback through a survey.