This is the same for any company though. I love using SGH as an...

This is the same for any company though. I love using SGH as an example. The share price of SGH just kept climbing. It went from $137 up to $785 in just three years. The company grew because SGH kept acquiring smaller firms. The bigger SGH got the bigger the acquisitions had to be for it to keep growing. The final purchase before the share price crashed was Quindel in the UK. Quindel as it turned out was a house of cards and it became the tipping point for SGH after the company was embroiled in a fraud investigation. A lot of people believe that this was the reason for the demise of SGH but in fact it was the accounting method that SGH used to report revenue.

SGH is a no win, no fee law firm. That means cases that took up to two years to reach a verdict were on the books and were really a liability with no revenue to show for it. SGH was reporting these "work in progress" cases that had not been paid out yet as revenue on the books. After ASIC investigated they came to a resolution that SGH could only report work in progress cases that had a high probability for success as revenue. That meant that SGH had to restate their accounts which actually meant an approximate 20% reduction in revenues in each of the previous annual reports.

The capital raise to acquire Quindell lead to a class action from shareholders as they had been mislead about the success of the company.

SGH was not a small cap and so that is why I say any company can be misleading about revenue.

The issue with BIG was again an accounting deception. BIG was accepting customer pre-payments from a financier. 41% of the payment was going to a security deposit. A 4C is not audited and according to accounting practices a deposit is accounted as cash flow and therefore is allowed to be displayed on a 4C. Of course there were other disclosure issues but we don't need to get into those.

So how do we know that CIO is not the same? It's a good question and probably impossible to answer as I have just given you two examples of how acceptable accounting practices have been used to make the books look better than they are. When investing in the share market we're always going to be taking risks. We just have to manage them as best as we can.