$TSLAQ In honor of Wirecard’s outing, here is a brief primer on non-money manager financial frauds & a simple example from $TSLAQ. Financial frauds occur in two broad manners: capitalize an expense (HealthSouth & WorldCom) or artificial revenues (Enron & Luckin.) (1/9)
These types are not binary. But, frauds only using capitalizing expenses appear to have more durability & longevity. Why? Most asset accounts have limited management estimates & discretion. Thus, deemed less risky than other accounts (2/9)
Don’t believe me? Here are the accounts within critical audit matters for $F & $GM. Warranties (F & GM), Doubtful Accounts (F), Pensions (F), Financial Leases (GM). What do all these accounts have in common? Extensive management estimates. (3/9)
You know what does not require management estimates? ASC 340-10 or Prepaids. “Prepaid expenses are amounts paid to secure the use of assets or the receipt of services at a future date or continuously over one or more future periods.” (4 /9)
Read the part about “paid to secure the use of assets or services.” It’s also in the name. PRE-PAID. $TSLAQ has a small receivable included in the prepaid account. Its current portion calculation is attached. (5/9) 
If a prepaid decreases due amortization (payment is less that the expense), it is a normal behavior correctly. If it stays the same, still functioning. But, if it increases substantially greater than the cash payment, muy mal. (6/9)
Look at the light green quarters. Two of three were profitable & had excessive positive variance. The third had a significant unexpected loss. Peach colors are audited quarters and magically behave appropriately. (7/9)
Now look at the total variance to payments & MyPower Receivables to the outstanding balance. $224m net difference. In the two profitable quarters of manipulation, it was $221m vs net profits of $159m. (8/9)
I have posted this previously. Someone at $TSLAQ has Big 4/E&Y experience. Prepaid audit procedures most likely would not extend beyond the current quarter if it had no abnormalities that required a scope expansion. Our lesson for the day? Boring accounts hide the fraud. (9/9)
