Financial Statement Fraud Detection of Ukrainian Corporations on the Basis of Beneish Model

Abstract

AbstractThe article analyzes the level of financial statements fraud in Ukrainian corporations based on the use of the Beneish model. The purpose of the article is to analyze the content of the Beneish model and its modified version to detect fraud of financial statements, as well as their use to identify such abuses by Ukrainian corporations. The study used the assumption that the application of the Beneish model and its modified version based on the improvement of the information base for their calculation can be used to detect fraud of financial statements of enterprises. The system of indicators of Beneish model for determining fraud of financial statements has been identified and analyzed. The 8-factor Beneish model has been analyzed for calculating the values of the M-Score (Beneish). The 5-factor Roxas model has been analyzed for calculating the values of the M-Score (Roxas). The information support for unobstructed application of the Beneish model and it modified by Roxas 5-factor variance in the process of identifying the level of falsification of financial statements has been identified and grounded. An algorithm for applying the Beneish and Roxas models to detect financial statements fraud has been developed. The indicators (variables) of the Beneish model for 30 leading Ukrainian corporations for 2017–2018 have been identified and analyzed. The value of the M-Score indicator according to the Beneish and Roxas models for 30 Ukrainian corporations for 2017–2018 has been calculated and analyzed. M-Score coincidences and differences for the Beneish and Roxas models for 30 Ukrainian corporations for 2017–2018 has been allowed to identify 4 possible interpretations of the results (M-Score (B) < −2.22 and M-Score (R) < −2.76; M-Score (B) > −2.22 and M-Score (R) > −2.76; M-Score (B) > −2.22 and M-Score (R) < −2.76; M-Score (B) < −2.22 and M-Score (R) > −2.76). Based on the comparison of actual and normative values of the M-Score indicator according to the Beneish and Roxas models, the level of reliability and the level of possible financial statements fraud of Ukrainian corporations has been identified.KeywordsFraudManipulationFinancial StatementsBeneish modelCorporations