Compares three definitions of earnings management used by accounting researchers and three methods of estimating it: aggregate accruals, specific accruals and discontinuities in…
Abstract
Compares three definitions of earnings management used by accounting researchers and three methods of estimating it: aggregate accruals, specific accruals and discontinuities in earnings distribution. Discusses evidence relating to the reasons for income‐increasing earnings management, income‐decreasing earnings management and specific contexts, e.g. financial institutions with regulatory constraints. Concludes that, although the evidence is limited, managers are more likely to manipulate income up rather than down; and identifies some opportunities for further research.
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This paper aims to investigate empirically the eight-variables Beneish M-model to identify occurrence of financial statement fraud or tendency to engage in earning manipulation.
Abstract
Purpose
This paper aims to investigate empirically the eight-variables Beneish M-model to identify occurrence of financial statement fraud or tendency to engage in earning manipulation.
Design/methodology/approach
A data set of 25,468 companies (Société Anonyme and Limited Liability Companies) in Greece was analyzed during two-year period of 2011-2012. Financial statements of banks are excluded.
Findings
The results showed that 8,486 companies or 33 per cent of the whole sample has a greater than −2.2 score, which is a signal that companies are likely to be manipulators. Also, for manipulators, results using F-distribution showed that days sales in receivable index (DSRI), asset quality index (AQI), depreciation index, selling, general and administrative expenses index (SGAI), total accruals to total assets index and leverage index (LVGI) are significant at 99 per cent confidence level in its effect on Beneish M-score. Also, there is a significant relationship between earning management, as expressed by Beneish M-score and each one of variables, DSRI, AQI, gross margin index, sales growth index, SGAI and LVGI. Most of all, DSRI explains 95.92 per cent of the variation in Beneish M-score in statistical terms.
Practical implications
Results are important for banking system, because financial statements information influence credit decisions of banks. Debt agreements include terms based upon accounting numbers. Also, using Beneish Model, it is a cheap and easy way for examiners of possible fraudulent activity.
Originality/value
To the best of the author’s knowledge, there is a great lack of research in Greece, using Beneish model. There is only one more study using the Beneish model, examining only a few companies listed in Athens Stock Exchange during 1999-2000. Findings have also important implications not only for banks but also for users of Greek financial statement accounts, especially to investors, auditors, regulators, to taxation and other state authorities.
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Asia Khatun, Ratan Ghosh and Sadman Kabir
This study aims to determine the number of companies involved in earnings manipulation. Additionally, this study has empirically investigated the common manipulation items among…
Abstract
Purpose
This study aims to determine the number of companies involved in earnings manipulation. Additionally, this study has empirically investigated the common manipulation items among the companies.
Design/methodology/approach
Bangladesh's listed commercial banks are selected as a sample for this study, and financial data from 2009 to 2018 were collected. The likely and nonlikely manipulator Beneish model (1999) divides the sample into two groups. Based on the M-score of the model, the banks are put into two groups. To identify the most influential variables, an independent sample t-test was done with the help of Statistical Package for Social Sciences (SPSS).
Findings
The findings show that banks in Bangladesh have an unstable trend in making manipulated financial reports. Results of the t-test reveal that overstating revenues, increasing intangible assets, lessening cost and accruals are the most appealing items for preparing a fraudulent financial report. The findings of this research work will help the investors take the right decision having the idea of manipulation in the banking sector of Bangladesh.
Originality/value
In the presence of many irregularities in the banking sector Bangladesh, very few studies have been carried out in forensic accounting and fraudulent financial reporting practices. Much research has focused on earnings management techniques. This research specifically focuses on identifying earnings manipulation in financial statements for micro-level variables like accounting accruals, intangible assets, etc. This will help policy-makers and financial statement readers to be proactive while reading financial statements and taking any investment decision.
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Gagan Kukreja, Sanjay M. Gupta, Adel Mohammed Sarea and Sumathi Kumaraswamy
The increasing incidence of fraudulent financial reporting by firms in recent years raises concerns about investors' confidence in capital markets. Academicians and industry…
Abstract
Purpose
The increasing incidence of fraudulent financial reporting by firms in recent years raises concerns about investors' confidence in capital markets. Academicians and industry practitioners adopt diverse risk management techniques to detect fraudulent reporting of financial statements. This paper aims to determine the effectiveness of the Beneish M-score and Altman Z-score models for the early detection of material misstatements at Comscore, Inc., a media analytics firm in the United States of America.
Design/methodology/approach
The financial statements of Comscore Inc. from 2012 to 2018 were analyzed with the primary objective of early fraud detection by employing the Beneish M-score and the Altman Z-score.
Findings
The study’s outcomes indicate that the Beneish M-score is less predictable in fraud detection compared to the Altman Z-score. The study results did not confirm the efficacy of the Beneish model in predicting fraudulent financial statements. The study concludes that the choice of forensic tool greatly influences fraud detection outcomes.
Practical Implication
The research findings can guide the policy decision-making of investors, financial auditors, and forensic auditors as this study provides some evidence of the effectiveness of forensic tools in the detection of financial statement fraud in corporate entities.
Originality/value
This is the first study to apply these two widely used tools to the most recent big corporate scandal: Comscore, Inc.
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Engy ElHawary and Rasha Elbolok
This examine the impact of environmental, social and governance (ESG) performance on financial reporting quality (FRQ) before and during COVID-19 in the Egyptian market.
Abstract
Purpose
This examine the impact of environmental, social and governance (ESG) performance on financial reporting quality (FRQ) before and during COVID-19 in the Egyptian market.
Design/methodology/approach
This study uses quarterly data from 2017 to 2021 to draw conclusions, with a sample consisting of 486 firm-year observations for 27 Egyptian companies listed on the Standard and Poor’s/Egyptian Stock Exchange ESG index. This study uses both firms’ ESG scores and the Beneish Model, an earnings detection model, as proxies for FRQ. COVID-19 effects on ESG performance and FRQ were examined by using Pearson’s correlation coefficient and two-stage least squares.
Findings
COVID-19 has a significant impact on the link between ESG and FRQ. This implies that corporations with high ESG performance are less likely to manipulate earnings (having a low M-score) and thus provide high FRQ during the COVID-19 pandemic. Moreover, there is a significant positive relationship between firm size, leverage and M-Score, indicating that large firms typically present a high FRQ.
Research limitations/implications
The sample size and data availability are the main research limitations. Additionally, this study only considers the effects of firms’ ESG performance on FRQ during the COVID-19 pandemic. Thus, future research should consider other factors associated with investors’ corporate social responsibility (CSR).
Practical implications
This research has practical implications for market regulators seeking to establish a legislative framework and enhance guidance to mandate managers to provide ESG data and CSR reports appropriate for Egypt and other developing economies in times of crisis.
Social implications
Promoting the adoption of ESG practices in business, particularly during crises, has the potential to effectively provide high-quality and reliable financial reporting required for investment.
Originality/value
This study aspires to address notable deficiencies in the pertinent literature concerning the relationship between ESG performance and FRQ during COVID-19. To the best of the authors’ knowledge, little is known about how ESG performance changes in response to pandemics in emerging markets. To address this gap, this study examines the effects of COVID-19 on the relationship between ESG performance and FRQ in Egyptian-listed firms from 2017 to 2021.
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PT Garuda Indonesia (GIAA) Persero Tbk is the one only pride airline of Indonesian sovereignty. Although the bird achieved abundant international awards and certifications, the…
Abstract
Purpose
PT Garuda Indonesia (GIAA) Persero Tbk is the one only pride airline of Indonesian sovereignty. Although the bird achieved abundant international awards and certifications, the bird is dying and needs a remedy immediately. The frequent annual turnover of board executives did not make impact to the financial performance; this seems to be tip of the iceberg, peculiar with the number of restatement over the past decade. Therefore, this paper aims to address the issue through the function of five red flags model which known as Altman Z-score, Sprigate S-score, Grover G-score, Beneish M-score and Dechow F-score.
Design/methodology/approach
This is exploratory study of univariate analysis using financial distress and fraudulent financial statement approach, while the type of data is secondary taken from Indonesia Stock Exchange during 12 years observation from 2007 to 2018.
Findings
Altman, Springate and Grover produce strong indication of GIAA’s financial distress; all models score the same distress indication by 14 times. All distress models agreed that only 2011 and 2012 classify to the safe zone when GIAA performed the corporate actions. Beneish scores fraud indication by eight times. Dechow scores slightly higher by nine times. The number of fraud predictions in this research are in line with the number of restatement, which proves the assumption that restatement can be used as a signal of the financial statement fraud. When GIAA categorized in safe zone, both Beneish and Dechow score no to fraud, this indicates the fraud occurence during health period is lower.
Research limitations/implications
The motivation behind the financial statement fraud is not discuss through this research but from the primary theory of the fraud triangle. Financial distress possesses strong relationship with pressure factor; therefore, exit from financial crisis is one of the best solution to mitigate the financial statement fraud.
Practical implications
The average of Beneish score is −2,26, slightly above the manipulator threshold which is −2,22. This must be marked as an ample conjecture of GIAA’s fraud inclination and been a highlight for the auditor both internal and external when performing control testing, attestation and other assurance services.
Social implications
All models in this study can apply to any other corporate issues, especially for evaluating the government company who has loosen the public trust recently in Indonesia such as PT Asuransi Jiwasraya and PT Asabri. Moreover, the pandemic COVID-19 has brought the world to the new unprecedented risk, especially the economic turmoil which lead the possibilities of corporate distress and fraud. By applying these scores, public might have tools as pre-elemenary assessment to serve a decision where to put trust in a company.
Originality/value
This paper reveals a combination from various models of financial distress and financial statement fraud in order to generate the financial solutions named « DDCC » Debt Restructuring, Debt Conversion, Capex Management and Cost Cutting.
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Nor Farizal Mohammed, Nor Aqilah Sutainim, Md. Shafiqul Islam and Norhayati Mohamed
Prior literature proposes that integrated reporting (IR) drives integrated thinking (IT), enabling an organisation to create value for stakeholders in both quantitative (economic…
Abstract
Purpose
Prior literature proposes that integrated reporting (IR) drives integrated thinking (IT), enabling an organisation to create value for stakeholders in both quantitative (economic performance) and qualitative manners (beyond financially-oriented information). Fraud triangle theory also predicts that earnings manipulation may also affect the creation of value. Thus, this study seeks to provide empirical evidence on the relationship between IT, earnings manipulation and value creation.
Design/methodology/approach
This data sample comprises of 497 observations from 2014 to 2018 of the top 100 market capitalisation of Malaysian public listed companies (PLCs) in Bursa Malaysia. This study used an index score for IT variable and Beneish’s M-score as a proxy to detect earnings manipulations and to classify the companies into non-manipulators and manipulator companies. Value creation measurements consist of four variables under shareholder's value creation and one variable represents value creation through innovation.
Findings
The findings show that IT is significantly related to value creation, whereas earnings manipulation had no significant relationship with value creation except for value creation measured using Tobin's Q ratio. The alarming finding is that a fraud predictor, namely earning manipulation, measured by Beneish-M, is not a predictor of whether companies are creating better or less value.
Originality/value
This study is among the early literature that provides empirical evidence of the relationship between IT and value creation. Furthermore, this paper adds to look at the association of earning manipulation and value creation.