Financial Reporting Irregularities in Indian Public Sector Units:An Analysis of Current Practices

In search of a unifying measurement and reporting feature of accounting elements, this study analyzes the best practice efficiency as an operating parameter of the public enterprises in India with the help of a DEA sensitivity technique and then empirically evaluates how the interrelatedness of the elements in financials may help in congregating the warning signs of accounting irregularities using the F-Score testimony. The study lends support to how the elements in accounting statements support each other and how this inkling can be used to detect irregularities and highlight where more questions are warranted. Using the decision variables of 44 public enterprises {Turnover (T), Earning (P), and Research Expenditure (R)} the best practice status on the basis of efficiency score is evaluated to see whether a change in value of decisive factor significantly affects the performance grade between the enterprises under study and accordingly enterprises are categorized to detect accounting irregularities. Though no method to detect financial irregularities is full proof, but the findings evidently show that the public enterprises in India in general are not engaged in accounting games due to moderate profitability, strong liquidity and effective operating efficiency, and hence the possible motives for manipulating financial information is almost absent in 14 enterprises and more specifically the warning signs are completely absent when they optimize combined effect of decision variables.