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Article
Publication date: 16 June 2021

Andreas Maniatis

The aim of this paper is to detect whether there are companies listed in the general index of Athens Stock Exchange Market that possibly conduct earnings manipulation…

Abstract

Purpose

The aim of this paper is to detect whether there are companies listed in the general index of Athens Stock Exchange Market that possibly conduct earnings manipulation during 2017–2018.

Design/methodology/approach

The paper is based upon the Beneish model (M-score), which consists of eight variables to examine the probability of financial statement fraud related to earnings manipulation for 40 companies listed in the Athens Stock Exchange Market. Any company with an M-score −2.22 or above is likely to be a manipulator whereas any company that scores −2.22 or less is unlikely to conduct earnings manipulation.

Findings

After calculating the M-score for each company, it was found that 33 (out of 40) companies had M-score values lower than −2.22. Therefore, 82.5% of the sample is considered rather unlikely to conduct earnings manipulation whereas 17.5% of the companies listed in the general index of Athens Stock Exchange Market is likely to manipulate its earnings.

Research limitations/implications

In this paper, all institutions related to financial services were left out of the sample because of the fact that M-score cannot provide reliable results when applied on similar companies.

Originality/value

Beneish model offers a probability of financial fraud and can be therefore used as a supplementary test for auditors, fraud examiners or even national regulators such as the Hellenic Accounting and Auditing Standards Oversight Board or the Hellenic Capital Market Commission. The results of this paper can contribute to the literature concerning financial fraud in Greece during 2017–2018 because no relevant recent researches have been published yet.

Details

Journal of Financial Crime, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 9 March 2020

Wanting Lu and Xiaokang Zhao

The purpose of this paper is to start with the background of the construction of the M-score model, find the variables that can represent the fraud characteristics of…

Abstract

Purpose

The purpose of this paper is to start with the background of the construction of the M-score model, find the variables that can represent the fraud characteristics of Chinese companies, and use the data of Chinese A-share listed companies to modify the M-score model.

Design/methodology/approach

In this paper, the fraud behavior of Chinese enterprises that M-score cannot detect is summarized as the basis of adding variables. Then, based on the data of Chinese listed companies, a modified M-score model including nine variables is constructed by the logistic regression method based on Wald.

Findings

Based on the original 8 variables of M-score, this paper adds 10 new variables that can represent the fraud characteristics of Chinese listed companies, and finally, constructs a modified M-score model with 9 variables. Results indicated that indexes such as gross profit margin, fixed assets depreciation rate, equity concentration and audit opinion can characterize the financial fraud of Chinese listed companies.

Practical implications

The modified M-score model based on the characteristics of Chinese enterprises’ fraud is more suitable for Chinese market, which can help investors avoid fraud risks, protect their own rights and interests and reduce losses.

Originality/value

Starting from the background of the model, this paper looks for variables that can characterize the characteristics of fraud in Chinese listed companies. Then, subdivides the research samples into specific fiscal years in which fraud occurs, so that the modified M-score model can be more suitable for the Chinese market.

Details

Journal of Financial Crime, vol. 28 no. 2
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 4 December 2020

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…

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.

Details

Journal of Investment Compliance, vol. 21 no. 4
Type: Research Article
ISSN: 1528-5812

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Article
Publication date: 10 July 2007

Tim Bower and Bradford Dennis

The purpose of this paper is to outline three analytic tools utilized in the analysis and interpretation of LibQUAL+™ quantitative data.

Abstract

Purpose

The purpose of this paper is to outline three analytic tools utilized in the analysis and interpretation of LibQUAL+™ quantitative data.

Design/methodology/approach

D‐M scores, value rankings, and split‐file cross‐tabulations were used to assess the service items from the 2004 LibQUAL+™ quantitative data. The D‐M score is methodologically superior to other methods used in that it is a single score that takes into account all three LibQUAL+™ perception/expectation scores as dictated by the theoretical model LibQUAL+™ is based upon.

Findings

The paper finds that these tools provide a way to more easily utilize LibQUAL+™ results in taking actions and developing strategic plans designed to improve patrons' perceptions of service quality. These tools also allow for the continuous evaluation of implemented plans.

Practical implications

The paper discusses how these tools helped produce findings that were informative and in a format that decision makers could easily comprehend and utilize.

Originality/value

This paper outlines three approaches and offers practical recommendation of how to analyze and interpret LibQUAL+™ quantitative data as well as present findings to strategic stakeholders.

Details

Performance Measurement and Metrics, vol. 8 no. 2
Type: Research Article
ISSN: 1467-8047

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Article
Publication date: 2 October 2017

Md Shamimul Hasan, Normah Omar, Paul Barnes and Morrison Handley-Schachler

The purpose of this study is threefold: first, to detect trends in financial statement manipulation; second, to measure the level of manipulation and to measure the…

Abstract

Purpose

The purpose of this study is threefold: first, to detect trends in financial statement manipulation; second, to measure the level of manipulation and to measure the variation in manipulation between countries; and, third, to identify widely used techniques in financial statements manipulation.

Design/methodology/approach

This study uses financial data of listed companies from Asia, namely, Japan, Singapore, Malaysia, Indonesia, Thailand, Hong Kong and China. The study adopts financial ratios, financial forensic tool, dichotomous approach and statistical tools to analyze the data (84,000 observations) over a period of four years from 2010 to 2013.

Findings

The results show that 34 per cent of sample companies in selected Asian countries are involved in the manipulation of financial statements; the average level of manipulation (overall manipulation index) is 72 per cent; and there is a significant difference between countries at 5 per cent level. The study also identifies four most commonly used techniques, namely: days’ sales in receivable (DSRI), depreciation (DEPI), assets quality (AQI) and total accruals to total assets (TATA).

Research limitations/implications

Although this study found a significant national difference between countries in terms of practicing manipulation in financial statements, it did not address the issue of why some countries have higher level of manipulation and greater fluctuations in manipulation than others. Further study could be conducted to look for the reasons on these issues.

Practical implications

Investors and other stakeholders are advised to judge the manipulation in financial statements before fixing up for investment. At least they should examine Sales, Accounts Receivable, Depreciation, Value of Fixed Assets and Accruals data before accepting the financial statement in good faith.

Social implications

The trend of manipulation in financial statements is increasing day by day and that is why it needs to prevent to protect our society from white collar crime. The cost of white collar crime is much higher and key executives are making money at the expense of investors and other stakeholders. This kind of study creates awareness among stakeholders about the manipulation as well as provides techniques to examine the faithfulness of financial statements. Then, managers will not overstate or understate either revenues or expenses easily, as it can damage the goodwill.

Originality/value

This is the first study of its kind addressing measurement of manipulation score, overall manipulation index (OMI) and identification of widely used variables of manipulation in financial statements are new contributions towards existing literature of earnings manipulation.

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Article
Publication date: 8 August 2016

Rachappa Shette, Sudershan Kuntluru and Sunder Ram Korivi

This paper aims to examine the impact of initial public offerings (IPO)-year opportunistic earnings management on long-term market and earnings performance.

Abstract

Purpose

This paper aims to examine the impact of initial public offerings (IPO)-year opportunistic earnings management on long-term market and earnings performance.

Design/methodology/approach

A sample of 150 book-built IPOs over 2001-2006 are analysed based on industry adjusted return on sales and industry adjusted return on assets for six post-IPO years. The quality of earnings is measured in two ways using discretionary accruals and Beneish manipulation score. Modified Jones model is used to estimate the expected accruals and to compute the discretionary accruals for each IPO firm year. Regression model is used to examine the impact of IPO-year quality of earnings on future earnings performance.

Findings

The paper finds that earnings and market performance of IPO companies are abnormally higher in the IPO-year, as compared to the post-IPO years. Similarly, the quality of earnings during the IPO-year is lower than those in the post-IPO years. The results also show that the opportunistic earnings management in IPO-year has significant negative impact on the long-term adjusted earnings and market performance.

Research limitations/implications

The present study is confined to the period from 2001 to 2006 for the purpose of post-IPO analysis for a period of six post-IPO years. Thus, the conclusions of this study are to be viewed with this limitation.

Originality/value

This paper is the first study based on the Indian context to examine the relationship between the quality of earnings of the IPO firm and long-term earnings and market performance.

Details

Review of Accounting and Finance, vol. 15 no. 3
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 3 October 2016

Spyridon Repousis

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.

Details

Journal of Financial Crime, vol. 23 no. 4
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 18 January 2021

Ryan Aviantara

PT Garuda Indonesia (GIAA) Persero Tbk is the one only pride airline of Indonesian sovereignty. Although the bird achieved abundant international awards and…

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.

Details

Journal of Modelling in Management, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-5664

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Article
Publication date: 18 June 2021

Gatot Soepriyanto, Sienny Tjokroaminoto and Arfian Erma Zudana

This study aims to examine the association between annual report readability and accounting irregularities in Indonesia. Using 967 firm-year observations over the…

Abstract

Purpose

This study aims to examine the association between annual report readability and accounting irregularities in Indonesia. Using 967 firm-year observations over the 2014–2017 period, this paper unable to find evidence that annual report readability is associated with accounting irregularities. The results are robust after using alternate measurements of accounting irregularities proxies and readability indexes. This paper also finds that the corporate governance mechanism and foreign shareholder structure did not moderate the association between annual report readability and accounting irregularities.

Design/methodology/approach

The study uses an archival method with cross-sectional regression of 967 firm-year observations over the 2014–2017 period to investigate an association between annual report readability and accounting irregularities in an emerging market setting. To check the robustness of the results, this paper conducts a battery of robustness tests.

Findings

This paper finds evidence that annual report readability is not associated with accounting irregularities in Indonesia. The results are robust after using alternate measurements of accounting irregularities proxies and readability indexes. This paper also finds that the corporate governance mechanism and foreign shareholder structure did not moderate the association between annual report readability and accounting irregularities. This implies that the readability of annual reports does not have the ability to predict the likelihood of accounting irregularities in Indonesia. It is possible that firms with accounting irregularities will be inclined to voice simpler stories which can counteract the tendency of lies to be linguistically more complex. Indeed, according to the Education First English Proficiency Index, Indonesia is categorized at a low proficiency level. Furthermore, this paper also discovers that the average readability of the management discussion and analysis (MD&A) of Indonesian public listed firms is at an ideal score by having a Fog Index of 13.32. The findings provide valuable insights for stakeholders in using annual reports for their decision-making, especially in an emerging market setting and non-English speaking countries.

Research limitations/implications

It is important to interpret the findings in the context of the limitations of the readability index the authors used. It is argued that Fog Index, Flesch-Kincaid and Flesch Reading Ease have their own limitations as considered inadequate to be used in the context of business and accounting narratives that are adult-oriented and specialist in nature (Jones and Shoemaker, 1994; Loughran and McDonald, 2014). Another caveat relates to the use of proxies for accounting irregularities. The M-Score and F-Score have some limitations in which, among others, were determined without considering the normal level of accruals or period where manipulations were absent (Ball, 2013).

Practical implications

One reason underlying the result is that Indonesian firms, in general, do not consider the complexity of the annual report, particularly MD&A disclosures, as a tool to mask financial reporting irregularities. It is also possible that firms with accounting irregularities will incline to voice simpler stories because it is difficult to be untruthful (Lo et al., 2017). Indeed, according to Education First English Proficiency Index, Indonesia was categorized in low proficiency level and ranked 61st out of 100 countries being surveyed (Education First, 2019). As policymakers, locally and globally, are calling for more simplified reports including a plain English approach, the study can be insightful to their deliberations. It suggests that policymakers need to consider a country’s English proficiency, writing skills, regulatory environment and corporate policy on shaping the complexity and narrative of a firm’s communications.

Originality/value

The study contributes to a scarcity of research that investigates English-written annual reports in non-English speaking countries (Jeanjean et al., 2015; Lundholm et al., 2014). As such, the study findings provide insights related to MD&A in an under-researched area and contribute to improving MD&A not only in Indonesia but also in neighbor countries that share similar social, political and economic characteristics. Also, this study is important for foreign institutions or individuals investing on Indonesian-listed firms. According to Candra (2016), approximately 60% of companies listed in the Indonesia stock exchange are owned by foreign individuals or institutions. They rely greatly on the English texts of annual reports to understand the companies’ financial performance. Moreover, La Porta et al. (2002) asserted that firms with a majority of foreign shareholders (dominantly owned by foreign investors) are more likely to face information asymmetry, primarily due to geographical factors and language barriers.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-2517

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Article
Publication date: 29 April 2021

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…

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.

Details

Business Process Management Journal, vol. 27 no. 4
Type: Research Article
ISSN: 1463-7154

Keywords

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