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Detecting Manipulations in Financial Statements of Indian Companies


Affiliations
1 Assistant Professor, Sri Aurobindo College, University of Delhi,, India
 

The purpose of this paper is to identify the likely manipulations in the financial statements of companies listed in India. It aims to examine the statistical differences among the manipulator and non-manipulator companies along with determining the ratios that may be significant predictors of financial statement fraud. The sample for the study comprises top 200 companies listed on BSE for the period 2018-2022. M-Scores of the companies were calculated using the Beneish model and ratio analysis with twenty ratios was conducted. Logistic Regression was carried out to find out the significant predictors of possible manipulations in the financial statement. The findings reflect that manipulations exist in the financial statements of companies. Some of the profitability, liquidity, leverage, and efficiency ratios are found to statistically differ between two sets of companies. Profitability ratio acts as a likely predictor of fraud in financial statements. The paper is one of the few studies carried out in the Indian context to predict fraudulent financial reporting by non-financial companies using the Beneish model and Ratio analysis. The paper offers relevant insights to the stakeholders for carefully analyzing specific ratios in the financial statements for detecting possible manipulations. The knowledge drawn from this academic research may help auditors, regulators and policy makers to put rigorous processes in place for early identification of fraud.

Keywords

Beneish M-Score, Ratio Analysis, Financial Statement Fraud, Earnings Manipulation.
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  • Detecting Manipulations in Financial Statements of Indian Companies

Abstract Views: 115  |  PDF Views: 68

Authors

Minny Narang
Assistant Professor, Sri Aurobindo College, University of Delhi,, India

Abstract


The purpose of this paper is to identify the likely manipulations in the financial statements of companies listed in India. It aims to examine the statistical differences among the manipulator and non-manipulator companies along with determining the ratios that may be significant predictors of financial statement fraud. The sample for the study comprises top 200 companies listed on BSE for the period 2018-2022. M-Scores of the companies were calculated using the Beneish model and ratio analysis with twenty ratios was conducted. Logistic Regression was carried out to find out the significant predictors of possible manipulations in the financial statement. The findings reflect that manipulations exist in the financial statements of companies. Some of the profitability, liquidity, leverage, and efficiency ratios are found to statistically differ between two sets of companies. Profitability ratio acts as a likely predictor of fraud in financial statements. The paper is one of the few studies carried out in the Indian context to predict fraudulent financial reporting by non-financial companies using the Beneish model and Ratio analysis. The paper offers relevant insights to the stakeholders for carefully analyzing specific ratios in the financial statements for detecting possible manipulations. The knowledge drawn from this academic research may help auditors, regulators and policy makers to put rigorous processes in place for early identification of fraud.

Keywords


Beneish M-Score, Ratio Analysis, Financial Statement Fraud, Earnings Manipulation.

References