Potential usage of Beneish's M-score under the conditions of selected segment of Slovak Economy

Boris Kollar,T Kliestik

doi:10.1051/shsconf/202112903015

Abstract

Research background: The motivation behind submitted article is the institutional research of earnings management. The aim is to identify the differences between the usage of creative accounting techniques in the form of Beneish’s M-score under the conditions of Slovak economy. The paper focuses on these differences and specifics and possible reasons behind them. Paper highlights also the impact of globalization on companies and therefore also behind their motives to use earnings management. It also offers several definitions of earnings management and also highlights the importance of the borderline knowledge between earnings management and fraudulent behavior. The Beneish’s model seems to be used by several of major Slovak companies in food segment. The aim was to analyse this sector of Slovak economy, because of its importance to everyday life of people. To assess the motivation behind its usage by these companies. Either it is because they want to transfer their earnings to maternal companies, or there are unexpected local circumstances. Purpose of the article: To describe specifics in the process of Beneish’s model usage under the conditions of selected segment of Slovak economy and also to highlight motivation behind its usage. Methods: The paper is built on the statistical methods, financial analysis as well as the methods of formal logic, like comparison, analysis or synthesis and deduction. Findings & Value added: Comprehensive overview of the earnings management definition, its forms and motives behind its usage and foremost specifics in its usage under the conditions of selected segments of Slovak economy.

Highlights

Earnings management, is an area interesting for every businessman or manager in the company
In the calculation of the value of M itself, the results of which are shown in Table 1, we observe that in 55% of cases the final value was higher than -2.22, we can talk about the situation when the company used earnings management to adjust the financial statements
During one of the analysed years, the company BILLA, s.r.o. has reached a threshold, so it is not possible to determine whether the probability of using earnings management is valid or not

Summary

Introduction

Earnings management, is an area interesting for every businessman or manager in the company. We will look at this concept as a way of managing, administering or controlling people in order to achieve pre-seted goals. Proper set up of management plays an important role in a company, because it greatly influences whether a pre-seted goal can be met. The term "earnings management" was used for the first time in history in 1994 by Hepworth. Defining this concept with a simple sentence is difficult, as it follows from its nature, but for the purposes of this paper, we have decided start with following definition: Earnings management is meant to mislead shareholders about the underlying economic performance of companies or to influence contractual results that depend on reported accounting numbers (Healy, Wahlen, 1999). Thanks to the accounting policy, managers have a certain space and the opportunity to apply the principles of earnings management (Vagner et al, 2021)

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