Quality of Earnings by Thornton O'glove
Indeed, so loose is GAAP (Generally Accepted Accounting Practices) that a few years ago, in disgust, accountant Abraham Briloff suggested the term be changed to "Commonly Reported Accounting Practices," or CRAP.
-- page 164

Published in 1987, this book covers enough forensic analysis of firms' accounting statements to bootstrap you into becoming an investment detective. Although it'd help to have a semester of public accounting under your belt before reading this, O'glove starts easy and before you know it, you're eagerly consuming accounting details.

The premise of the book is that some firms (most firms) manipulate their earnings, and that an intelligent reader of public financial statements can determine that accounting tomfoolery is being perpetrated by management, and invest accordingly. The key points he goes over are:

  1. Differential Disclosure -- Coordinating lies across an enterprise is difficult, so you'll see different information about the same event from a firm at different times (sometimes in the same 10-K!).
  2. Non-operating Income & Non-recurring items -- padding your annual income with "income" from selling something, revaluing reserves, etc. that boost firm's Earnings Per Share, temporarily.
  3. Shareholder Reporting vs. Tax Reporting -- firms keep two sets of books; one for you the shareholder and one for the taxman (where Profits are maximized in one and minimized in the other).
  4. Accounting Changes are NOT boring.