Financial Crime World

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Financial Statement Fraud in Bosnia and Herzegovina: A Study Using the Beneish M-Score Model

Introduction

A recent study aimed to analyze the situation in Bosnia and Herzegovina regarding the prevalence of financial statement fraud among companies. The research used the Beneish M-score model, an eight-variable model developed by Professor Messod Beneish in 1999, to detect earnings manipulation.

Key Findings

The findings revealed that:

  • 16% of analyzed companies are prone to manipulate their financial statements data: This suggests that a significant proportion of companies in Bosnia and Herzegovina may be engaging in financial statement fraud.
  • Sales revenues and capitalization of expenses were the main areas where manipulations were done: These results are consistent with Schilit’s seven shenanigans, which indicate that companies prone to commit financial statement fraud often manipulate sales revenue and expense capitalization.
  • Gross margin index, asset quality index, and sales growth index significantly influence the Beneish M-score: This suggests that these variables can be used as indicators of potential earnings manipulation.

Implications

The study highlights the importance of using forensic accounting tools, such as the Beneish M-score model, to detect financial statement fraud. The authors suggest that this research is a first step in investigating financial statement fraud among BH companies and that the audit and forensic accounting profession is not yet fully developed in the country.

Key Takeaways

  • Financial statement fraud is a significant issue in Bosnia and Herzegovina.
  • Companies prone to commit financial statement fraud often manipulate sales revenue and expense capitalization.
  • The Beneish M-score model can be used as a tool for detecting earnings manipulation.
  • Forensic accounting profession needs development in the country.

References

The study references several sources, including:

  • Anh, N.H., & Lihn, N.H. (2016). Using the M -score model in detecting earnings management: evidence from non-financial Vietnamese listed companies.
  • Association of Certified Fraud Examiners (2016). Report to the Nations on Occupational Fraud and Abuse.
  • Beneish, M. (1999). The detection of earnings manipulation.
  • Isaković-Kaplan, Š., & Delalić, A. (2014). Kreativno računovodstvo u privrednim društvima u BiH, Međunarodna naučno stručna konferencija: Borba protiv prevara i korupcije 2014, Forenzika i prevencija Beograd.
  • Schilit, M.H., & Perler, J. (2010). Financial Shenanigans: How to detect accounting gimmicks & fraud in financial reports.
  • Singleton, T.W. & Signleton, A.J. (2010). Fraud Auditing and Forensic Accounting.
  • Warshavsky, M. (2012). Analyzing earnings quality as a financial forensic tool. Financial Valuation and Litigation Expert, issue 39.