Corporate cover up works most of the times. When it does not, it boosts the impact. Covering up transforms a high-probability low-impact risk into a low-probability high-impact risk. Accounting analysis is generally the prior step before making the investment. Other proposals are to invest where:
1. Accounting standards are strong enough to link reporting to reality. .2 Accounting statements from publicly quoted companies are accurate and timely, and a regulatory framework exists to enforce the accounting principles.
There are other tell-tale signs to spot within the increasing onslaught of corporate PR and white-wash:
Too optimistic sales forecasts – take your risk analytical Kalashknikov and shoot the balance  sheet apart. Does the overall balance sheet “feel” right – too rapid a turnaround?  If the balance sheet is that good – then why are directors dumping their shares?
Do we have a good balance of voices on the board, or are they all in unison trying to get into  some scam?  Were there a few too many “balancing items”?
Which period were the majority of revenues booked and received (no receipt means no  revenue).  What sort of products and services were called revenue-producing?  Are they disposing of a lot of assets from the group?
Is the auditor also employed in another fee-paying activity within the company? Another view for detecting cooked accounting books:
1) Record revenue too fast or too much. 2) Registering false revenue. 3) Increasing income with once-off gains. 4) Shifting expenses back or forwards into another period. 5) Reducing liabilities or completely omitting them.
6) Shifting current revenue forwards into a future period. 7) Shifting future expenses back or forwards into another period.
How long can this go on? It is not acceptable corporate behaviour, but if we are to believe the regulators, it will continue as long as companies grow or change.
In each of the cases involving banks, management seemed to be content with the loss of vigor in the process and the external auditor was apparently satisfied to simple collect a fee. This is totally unacceptable. Further, as the organization evolves by offering new products, changing processes, outsourcing services, complying with the new regulations, or growing through mergers, the controls need to be modified to reflect the changes in risks. In some case, the controls failed with respect to the newer risk exposures that were not identified, or growth put strains on existing control processes that were not suitable for a larger organization.
Risk management means not sleeping on the job.