fVLe i,,.# 39 o!

-*#+/n*/#(#+ 2012 Pa$# 16

forensics/fraud - ea+)&)$, Q.a'&-0 a)" -%# B#)#&,% M*"#'
WHY EARNING5 QUALITY
Iarnings quaIily is an imorlanl asecl
of evaIualing a comany's financiaI
heaIlh. Il has been sludied since al
Ieasl 1934, as referenced in Graham
and Dodd's Securit" Anal"sis& Indeed,
Warren uffell considers lhe book's
guidance as one of lhe four mosl lreas-
ured books lhal he ovns.
1
Iarnings
QuaIily reIales lo lhe abiIily of a com-
any's reorled earnings lo besl sym-
boIize ils lrue earnings. Iarnings quaI-
ily aIso refers lo lhe slabiIily, or Iack
lhereof, in a comany's reorled earn-
ings.
AnaIysls, inveslors and manage-
menl have deIoyed dozens of forensic
indices lhal aid lhe forensic accounlanl
in assessing lhe robabiIily of earnings
maniuIalion by a susecl comany.
The vide variely of forensic indices
vas deveIoed lo evaIuale earnings
quaIily, and idenlify vhelher a coma-
ny's financiaI slalemenls may olen-
liaIIy refIecl maniuIaled earnings.
The quaIily of a comany's earnings is
one facel of an invesligalion lhal is
oflen overIooked in lhe financiaI foren-
sic rocess.
This arlicIe discusses various
asecls of earnings quaIily, and dis-
cusses a melhod for delecling earnings
maniuIalion. The eneish M-Score
ModeI (eneish ModeI), deIoyed as a
financiaI forensic looI, can assisl in
evaIualing lhe robabiIily of earnings
maniuIalion in a comany, as veII as
idenlifying areas lhal may require
grealer scruliny.
DETERMINING
EARNING5 QUALITY
Iarnings quaIily focuses on lhe exlenl
lo vhich lhe reorled nel income devi-
ales from lhe acluaI, lrue earnings of a
comany. A reviev of a comany's
earnings over lime may be an indica-
lion of hov consislenl, and reealabIe,
lhe earnings are for a arlicuIar eriod
and in lhe fulure. Hovever, as lhe
financiaI slalemenls are lhe resonsi-
biIily of lhe comany's managemenl,
lransaclions can be slruclured lo besl
achieve a desired accounling resuIl by
reorling key financiaI lransaclions lo
lhe comany's advanlage. Therefore,
lhe imacl of a given lransaclion can
vary from comany lo comany, as
veII as belveen differenl induslries. In
addilion, lhe earnings delerminalion
rocess becomes more robIemalic,
and increasingIy difficuIl lo bench-
mark, as a resuIl of lhe myriad reorl-
ing raclices lhal individuaI coma-
nies emIoy lo reorl rofils, such as
oeraling earnings, nel income and
income before laxes. AII of lhese differ-
ing faclors creale variabiIily, vhich
couId increase lhe chances lhal a com-
any's reorled earnings may have
been maniuIaled, and nol uncovered.
Some examIes of accounling
maniuIalions lo be avare of vhen
examining financiaI slalemenl dala for
a comany's earnings quaIily incIude:
Recording revenue loo soon or
vilh queslionabIe quaIily
Recording ficlilious revenue
oosling income vilh one-lime
gains
Shifling currenl exense lo a
differenl eriod
CailaIizing olhervise currenlIy
recognizabIe exenses
IaiIing lo record, or imroerIy
reducing, IiabiIilies
The earnings reorled by a comany
are a resuIl of ils accounling melhods,
in con|unclion vilh ils cuslomary busi-
ness raclices. In lhis conneclion,
accruaIs funclion as lemorary ad|usl-
menls lo address lhe liming of coma-
ny lransaclions by roviding manage-
menl's besl assumlions and eslimales.
As a resuIl, accruaIs couId reresenl
accelabIe accounling eslimales, based
on ralionaI assessmenls of lhe fulure,
or a rime managemenl looI for com-
milling earnings maniuIalion.
AIlhough Iarge accruaIs are nol aulo-
malicaIIy an indicalion of fraud, lhe
forensic accounlanl shouId be avare
lhal a fundamenlaI comonenl of
many financiaI slalemenl frauds is cen-
lered on earnings maniuIalion uliIiz-
ing accruaIs. Il is oflen difficuIl lo dif-
ferenliale belveen lhe lvo, bul lhe
magnilude and urose of accruaIs
can be used as a baromeler lo assisl lhe
forensic accounlanl in lhe deleclion of
earnings maniuIalion.
The baIance sheel, income slale-
menl and slalemenl of cash fIovs are
inlerreIaled and shouId be anaIyzed
logelher. When lhe numbers vilhin
lhese slalemenls do nol make sense, a
more in-delh invesligalion is
Earnings Quality
expert TIP
#.+ B+3+/8. M-")47+ M4*+1
(B+3+/8. M4*+1), *+514>+* '8 '
,/3'3)/'1 ,47+38/) 9441, )'3 '88/89
/3 +;'1:'9/3- 9.+ 574('(/1/9> 4,
+'73/3-8 2'3/5:1'9/43 /3 ' )425'-
3>, '8 <+11 '8 /*+39/,>/3- '7+'8 9.'9
2'> 7+6:/7+ -7+'9+7 8)7:9/3>.
Continued on ne!t page
Analyzing
as a Financial Forensic Tool
MARK WAR5HAV5KY,
CIA/AV/CII, CVA, CA, ASA,
CII, DAIA, CIIA
Gellry Marcus Slern & Lehrer
Woodbury, NY
mvarshavsky+gmsIny.com
fVLe i,,.# 39 o!-*#+/n*/#(#+ 2012 Pa$# 17
forensics/fraud - ea+)&)$, Q.a'&-0 a)" -%# B#)#&,% M*"#', !*)-&).#"
required. GeneraIIy, lhe slalemenl of
cash fIovs may be considered a more
ob|eclive measure of erformance, and
a beller rediclor of a comany's lrue
earnings and fulure slabiIily. A disar-
ily belveen a comany's reorled high
nel income and ils Iov cash fIov
shouId roml an invesligalion.
DETECTING EARNING5
MANIPULATION
One quanlilalive forensic indexing
melhod deveIoed lo assisl in delecl-
ing vhelher a comany has maniuIal-
ed ils earnings is lhe eneish ModeI,
deveIoed by Irofessor Messod
eneish.
2
The eneish ModeI is simiIar
lo lhe AIlman Z-Score,
3
bul is used lo
uncover earnings maniuIalion ralher
lhan as a rediclor of bankrulcy.
Comanies vilh higher eneish scores
are more IikeIy lo be maniuIalors. In
his sludy, eneish's ModeI vas abIe lo
idenlify as many as lhree quarlers of
lhe comanies vho had maniuIaled
lheir earnings. The eneish ModeI can
be caIcuIaled by using a comany's
annuaI financiaI slalemenls, and differ-
enliales maniuIalors from non-
maniuIalors by aIying variabIes
from lhe financiaI slalemenls. Iurlher
invesligalion musl be comIeled lo
idenlify olenliaI Iegilimale causes for
resuIling abnormaIilies.
The eneish ModeI uses eighl
financiaI variabIes vieved as being
indicalors of comanies rone lo finan-
ciaI slalemenl maniuIalion. There is
an increased robabiIily for maniuIa-
lion vhen comany financiaI slale-
menls reveaI slalislicaIIy significanl
changes in accounls receivabIe, deleri-
oraling gross margins, decreasing assel
quaIily, saIes grovlh and increasing
accruaIs, among olhers.
The eighl variabIes emIoyed in
lhe eneish ModeI are resenled
beIov as indexes lo avoid confusion
vilh financiaI ralios (nole: lhe cur-
renl year financiaI slalemenl numbers
are indicaled as cy and lhe rior year
financiaI slalemenl numbers are indi-
caled as y):
1) Da"s* Sales in Receivables Inde!
(DSRI) + Measures lhe ralio of lhe days
Continued on ne!t page
lhal saIes are in
accounls receivabIe,
and benchmarks lhis
ralio againsl lhe rior
year. A resuIl of grealer lhan 1.0 vouId
indicale lhal accounls receivabIe, as a
ercenlage of saIes, has increased from
lhe rior year. Therefore, aIlhough a
disroorlionale increase in accounls
receivabIe reIalive lo saIes couId be lhe
resuIl of a comany's normaI oera-
lions, such as Iegilimale end-of-monlh
saIes or generaI business credil deci-
sions, il may aIso be indicalive of
infIaled revenues.
2) Gross Margin Inde! (GMI) + Meas-
ures lhe ralio of a comany's rior
year's gross margin lo lhe currenl
year's gross margin. The comany's
gross margin has delerioraled vhen
lhe resuIls are grealer lhan 1.0. Gross
margin delerioralion is a negalive indi-
calor of a comany's rosecls, mak-
ing such comanies more rone lo
maniuIale earnings.
3) Asset Qualit" Inde! (AQI) + Measures
lhe quaIily of a comany's assels by
caIcuIaling lhe ralio of non-currenl
assels, olher lhan Ianl, roerly and
equimenl (III), lo lolaI assels. Il
indicales lhe amounl of lolaI assels
lhal are Iess cerlain lo be uIlimaleIy
reaIized, idenlified as assel quaIily. An
AQI grealer lhan 1.0 indicales lhal lhe
comany has olenliaIIy increased ils
cosl deferraI or increased ils inlangibIe
assels, and crealed earnings maniuIa-
lion. Therefore, lhe grealer lhe AQI,
indicaling a reduclion in assel quaIily,
lhe grealer lhe robabiIily of earnings
maniuIalion.
4) Sales Groth Inde! (SGI) A resuIl of
grealer lhan 1.0 reresenls saIes
grovlh comared lo lhal of lhe rior
year. SaIes grovlh ilseIf is nol indica-
live of earnings maniuIalion, hovev-
er, grovlh comanies are more IikeIy
lo commil earnings maniuIalion.
5) Depreciation Inde! (DIII) A DIII
grealer lhan 1.0 may be an indicalion
of an uvard revision of lhe eslimaled
Iives of a comany's roerly, Ianl
and equimenl, vhich vouId increase
ils income.
6) Sales' General and Administrative
E!penses Inde! (SGAI) Measures lhe
ralio of a comany's SGAI lo saIes. A
disroorlionale increase in saIes, as
comared lo SGAI, vouId serve as a
negalive indicalion concerning a com-
any's fulure rosecls.
7) Total Accruals to Total Assets Inde!
(TATA) AccruaIs, caIcuIaled in lhis
formuIa as vorking cailaI
4
olher lhan
cash, are eslimales of lhe shorl lerm
forecasled infIov and oulfIov aclivi-
lies of a comany. IxcIuding any
ma|or changes vilhin lhe comany,
lhese accruaIs shouId be fairIy consis-
lenl vilhin some accelabIe measure
of slalislicaI varialion. Hovever,
accruaIs have consislenlIy rovided a
convenlionaI oorlunily lo erelrale
A))4:398 !+)+/;'(1+ ()>)
"'1+8 ()>)
A))4:398 !+)+/;'(1+ (5>)
"'1+8 (5>)
D+57+)/'9/43 E=5+38+ (5>)
D+57+)/'9/43 E=5+38+ (5>) + PPE (5>)
D+57+)/'9/43 E=5+38+ ()>)
D+57+)/'9/43 E=5+38+ ()>) + PPE ()>)
"'1+8 ()>)
"'1+8 (5>)
1-(C:77+39 A88+98 ()>) + PPE ()>)) / #49'1 A88+98 ()>)
1-(C:77+39 A88+98 (5>) + PPE (5>)) / #49'1 A88+98 (5>)
"'1+8 (5>) ? C489 4, "'1+8 (5>)
"'1+8 (5>)
"'1+8 ()>) ? C489 4, "'1+8 ()>)
"'1+8 ()>)
"'1+8, G+3+7'1 '3* A*2/3/897'9/;+
E=5+38+8 ()>)
"'1+8 ()>)
"'1+8, G+3+7'1 '3* A*2/3/897'9/;+
E=5+38+8 (5>)
"'1+8 (5>)
fVLe i,,.# 39 o!-*#+/n*/#(#+ 2012 Pa$# 18
forensics/fraud - ea+)&)$, Q.a'&-0 a)" -%# B#)#&,% M*"#', !*)-&).#"
a fraud. As a resuIl, higher osilive
accruaIs are associaled vilh lhe olen-
liaI for earnings maniuIalion, as
shovn above.
8) Leverage Inde! (LVGI) + Measures lhe
ralio of a comany's lolaI debl lo lolaI
assels. When lhe LVGI is grealer lhan
1.0, il indicales an increased Ieverage
and, lherefore, a comany more rone
lo financiaI slalemenl maniuIalion.
AIlhough each variabIe can be used
individuaIIy lo assess a secific com-
onenl of a comany's financiaI slale-
menl dala, lhe eneish ModeI lakes a
comany's resuIls of lhese eighl vari-
abIes and aIies lhem in lhe foIIov-
ing formuIa:
The figure of -4.84 is aIied as a con-
slanl in lhe formuIa, and each of lhe
eighl variabIes is muIliIied by ils
reseclive conslanl number. When
aIying lhe eneish ModeI, a score of
grealer lhan -2.22 (i.e., Iess of a nega-
live) is an indicalion lhal lhe coma-
ny's financiaI slalemenls may have
been maniuIaled.
APPLICATION OF THE BENEI5H
M-5CORE MODEL
The foIIoving lvo comanies have
been veII-ubIicized for earnings
maniuIalion of lheir reseclive finan-
ciaI slalemenls. The forensic indices
from lhe eneish ModeI had been
aIied lo lhese lvo comanies for a
secific year, rior lo vhen lhe coma-
ny fraud vas reorled lo lhe ubIic.
The resuIls are quile inleresling, and
reveaIing, from lhe erseclive of a
financiaI forensic aIicalion.
Enrnn Cnrpnratinn
Inron Cororalion (Inron) reresenl-
ed one of lhe Iargesl fraud scandaIs in
lhe hislory of lhe Uniled Slales. efore
ils coIIase in 2001, Inron vas number
7 on lhe Fortune Iisl of lhe 500 Iargesl
comanies. Al lhal lime, Inron vas
knovn as one of lhe mosl advanced,
and veII-regarded, businesses in lhe
vorId.
Inron emIoyed an assorlmenl
of decelive and frauduIenl accounl-
ing raclices lo obscure ils acluaI
financiaI osilion. Hovever, lhere
vere financiaI forensic varning signs
reveaIed in lhe Comany's financiaI
slalemenls rior lo ils dovnfaII and
evenluaI bankrulcy fiIing on Decem-
Continued on ne!t page
ber 2, 2001. Tvo of lhese varning signs
vere hov Inron measured, and
reorled, ils lolaI revenues, and ils
negalive oeraling cash fIovs. Hov-
ever, lhe biggesl red fIag in Inron's
financiaI slalemenls vere signs of oor
earnings quaIily as indicaled by sever-
aI key forensic measures.
The aIicalion of lhe eneish
ModeI lo Inron's financiaI slalemenls
indicaled lhal lhe Comany may have
been maniuIaling ils earnings as far
back as 1997. The caIcuIalions for lhe
firsl lvo coIumns of TabIe 1, beIov,
reresenl lhe eneish findings
5
and
calegorize lhe comanies inlo lvo
grous, non-maniuIalors and mani-
uIalors. The coIumn lo lhe righl, lilIed
Inron, reresenls lhe resuIls of aIy-
ing lhe eneish ModeI lo Inron's 1997
financiaI slalemenls.
TabIe-1 demonslrales lhal Inron
scored cIose lo, or higher, lhan mani-
uIalors in lhree of lhe eighl variabIes:
Gross Margin Index (GMI), Assel
QuaIily Index (AQI) and SaIes Grovlh
Index (SGI).
(%470/3- C'5/9'1 ()>) ? (5>)) ? (C'8. ()>) ? (5>)) + (I3)42+ #'= P'>'(1+ ()>) ? (5>))
+ (C:77+39 P479/43 4, L43- #+72 D+(9 ()>) ? (5>)) ? D+57+). & A2479. E=5+38+ ()>)
#49'1 A88+98 ()>)
L43- #+72 D+(9 ()>) +
C:77+39 L/'(/1/9/+8 ()>)
#49'1 A88+98 ()>)
L43- #+72 D+(9 (5>) +
C:77+39 L/'(/1/9/+8 (5>)
#49'1 A88+98(5>)
M = -4.84 + (0.92*D"!I)
+ (0.528*GMI) + (0.404*AI)
+ (0.892*"GI) + (0.115*DEPI)
- (0.172*"GAI) + (4.679*#A#A)
- (0.327*L$GI)
$'7/'(1+8
N43-
M'3/5:1'9478
M'3/5:1'9478 E3743
7
D'>8 /3 "'1+8 /3 !+)+/;'(1+8 (D"!I) 1.031 1.465 0.625
G7488 M'7-/3 (GMI) 1.014 1.193 1.448
A88+9 :'1/9> (AI) 1.039 1.254 1.308
"'1+8 G74<9. ("GI) 1.134 1.607 1.526
D+57+)/'9/43 (DEPI) 1.001 1.077 1.017
"'1+8, G+3+7'1 '3* A*2/3/897'9/;+ ("GAI) 1.054 1.041 0.649
#49'1 A))7:'18 94 #49'1 A88+98 (#A#A) 0.018 0.031 0.012
L+;+7'-+ (L$GI) 1.037 1.111 1.041
!$%.( 1
E0310 C13213$5,10
B(0&+/$3-,0* 51 5+( B(0(,4+ M-&13( M1'(.
P(3 B(0(,4+-M($0
6
fVLe i,,.# 39 o!-*#+/n*/#(#+ 2012 Pa$# 19
forensics/fraud - ea+)&)$, Q.a'&-0 a)" -%# B#)#&,% M*"#', !*)-&).#"
vas senlenced lo 25 years in rison for
securilies fraud, money Iaundering,
lax evasion, and olher charges.
TabIe 3 beIov is a summary of
seIecled variabIes caIcuIaled from Z-
esl's 1986 financiaI slalemenls, and
comares lhe resuIls of four mean vari-
abIes from lhe eneish ModeI.
Da"s* Sales in Receivables Inde! for
maniuIalors, according lo lhe eneish
ModeI, had a mean index of 1.465, and
Z-esl's index vas an incredibIe
177,622. Z-esl had no accounls
receivabIe in 1985, bul reorled aImosl
$700,000 in 1986. Il vas delermined
Ialer lhal lhe 1986 accounls receivabIe
vere ficlilious.
The mean Asset Qualit" Inde! is
1.039 for non-maniuIalors and 1.254
for maniuIalors. Z-esl had an index
of 2.043, or 63 ercenl higher lhan lhe
mean for maniuIalors, and 97 ercenl
higher lhan lhe mean for non-maniu-
Ialors. Z-esl's AQI of 2.043 al lhe end
of 1986 vas lhe resuIl of increased non-
currenl (sofl) assels. Z-esl, as vilh
many comanies lhal commil fraud,
vas guiIly of cailaIizing cerlain
exendilures as deferred cosls. Al
December 31, 1985, Z-esl's non-cur-
renl assels vere aroximaleIy 40 er-
cenl of ils lolaI assels. y December 31,
ased uon ils financiaI slalemenls,
lhe gross margin for Inron decreased
from 21.15 ercenl in 1996 lo 14.61 er-
cenl in 1997, and lhen lo 6.22 ercenl
in 2000.
8
Inron's Gross Margin Inde! of
1.448 exceeded lhe mean index of 1.193
for lhe maniuIalors' calegory by 21.4
ercenl.
The Asset Qualit" Inde! for Inron
of 1.308 vas higher lhan lhe maniuIa-
lors mean index of 1.254, and 25 er-
cenl grealer lhan lhe mean of 1.039 for
non-maniuIalors.
The Sales Groth Inde! for Inron
vas 1.526, vhich reresenled an index
cIose lo lhe mean of maniuIalors as
delermined by lhe eneish ModeI.
Inron used infIaled revenues as ils
slralegy in order lo give lhe imression
lo oulside inveslors lhal lhe Comany
vas an innovalive, high-grovlh invesl-
menl. In lhe four-year eriod rior lo
ils coIIase, Inron's reorled revenues
increased from $13.3 biIIion in 1996 lo
$100.8 biIIion in 2000, reresenling an
incredibIe 750 ercenl gain. The
grovlh of Inron's reorled revenues
for lhe eriod 1999
9
lo 2000, from $40.1
biIIion lo $100.8 biIIion, vas 151 er-
cenl and unrecedenled in any indus-
lry.
The overaII resuIl for Inron
vhen aIying lhe eneish ModeI caI-
cuIalions vas -1.89, vhich is grealer
lhan lhe -2.22 slandard used lo meas-
ure lhe IikeIihood of maniuIalion.
This resuIl Iaces Inron as a olenliaI
candidale of financiaI slalemenl earn-
ings maniuIalion in 1997, years before
lhe fraud became ubIic.
The delaiIed caIcuIalions for
Inron, using lhe eneish ModeI, are
resenled in TabIe 2 al lo righl.
ZZZZ Bcst Cnmpany, Inc.
Anolher reaI Iife examIe of financiaI
slalemenl earnings maniuIalion vas
lhe ZZZZ esl Comany, Inc. (Z-esl),
and lhe aclivilies of ils founder arry
Minkov. Z-esl aeared lo be an
exlremeIy successfuI carel-cIeaning
and resloralion comany, bul vas a
faade for a massive Ionzi scheme. In
}anuary 1986, Z-esl venl ubIic.
Three years Ialer, in 1989, Mr. Minkov
!$%.( 2
C$.&6.$5,10 1) 5+( B(0(,4+ M-&13( M1'(.
A22.,(' 51 E0310:4 1997 $0' 1996 F,0$0&,$. 5$5(/(054
M = -4.84 +0.92*DRI + 0.528*GMI + 0.404*AQI + 0.892*GI
+ 0.115*DEPI 9 0.172*GAI + 4.679*!A!A 9 0.327*L"GI
M = -4.84 + (0.92*0.625) + (0.528*1.448) + (0.404*1.308)
+ (0.892*1.526) + (0.115*1.017) 9 (0.172*0.649) + (4.679*0.012)
9 (0.327*1.041)
M = -4.84 + .5750 + .7645 + .5284 + 1.3612 + .1170 - .1116 + .0561
- .3404
M = (1.8898) 3160'(' 51 (1.89) = *3($5(3 (.(44 1) $ 0(*$5,7() 5+$0 (2.22)
!$%.( 3
#### B(45 C1/2$08, I0&.
B(0&+/$3-,0* 51 5+( B(0,4+ M-&13( M1'(.
P(3 B(0(,4+-M($0
10
$'7/'(1+8 N43-M'3/5:1'9478 M'3/5:1'9478 &-B+89
11
D'>8 /3 "'1+8 /3 !+)+/;'(1+8 (D"!I) 1.031 1.465 177,622
A88+9 :'1/9> (AI) 1.039 1.254 2.043
"'1+8 G74<9. ("GI) 1.134 1.607 3.905
#49'1 A))7:'18 94 #49'1 A88+98 (#A#A) 0.018 0.031 0.064
Continued on ne!t page
fVLe i,,.# 39 o!-*#+/n*/#(#+ 2012 Pa$# 20
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1986, lhe non-currenl assels reresenl-
ed over 65 ercenl of Z-esl's lolaI
assels.
The mean Sales Groth Inde! for
non-maniuIalors and maniuIalors
vas 1.134 and 1.607, resecliveIy. Z-
esl had an aslonishing index of 3.905,
or a 143 ercenl increase over lhe
mean maniuIalors. SaIes grovlh by
ilseIf is nol an indicalor of fraud. Hov-
ever, Z-esl, being a comany in a
grovlh mode, vas more incIined lo
commil fraud due lo lhe ressures
Iaced uon il lo conlinue ils allern
of raidIy groving saIes. SaIes
increased from $1,240,534 in 1985 lo
$4,845,347 in 1986, aImosl 300 ercenl.
Nol surrisingIy, ficlilious saIes vere
arl of Z-esl's frauduIenl financiaI
reorling.
Total Accruals to Total Assets for
non-maniuIalors had a mean index of
0.018, and lhe maniuIalors' calegory
had a mean index of 0.031. Z-esl's
index of 0.064 vas over 100 ercenl
higher lhan lhe mean maniuIalors'
calegory.
CONCLU5ION
QuaIily of earnings conlinues lo be an
imorlanl eIemenl in lhe invesligalion
of a comany's financiaI slalemenls.
The accruaI quaIily, a comonenl of
earnings quaIily, can be delermined by
lhe exlenl lhese accruaIs uIlimaleIy are
reaIized in lhe comany's cash fIovs.
1
#23*#63,8, M#2, S., %0/42+$54+/) #54*02 40 Financial
Forensics Body of Knowledge, D022'-- & G#&#73,+;
J0*/ +-'8 & S0/3, I/%., N'7 !02,, 2012.
2
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4+0/,: Financial Analyst Journal: 24-36, J5/', 1999.
3
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A/#-83+3 #/& 4*' P2'&+%4+0/ 0( C02102#4' B#/,2514%8,:
The Journal of Finance, S'14'.$'2, 1968, V0-. 23, N0.
4, 1#)'3 589-609.
4
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P20('3302 B'/'+3*;3 TATA (02.5-# &0'3 /04 53' 4*+3
4'2.. I/34'#&, *+3 (02.5-# 53'3 4*' #%45#- (02.5-# (02
702,+/) %#1+4#- 0( %522'/4 #33'43 .+/53 %522'/4 -+#$+-+-
4+'3.
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T#$-' 2.
6
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4+0/,: Financial Analyst Journal: 24-34, J5/', 1999,
T#$-' 2.
7
E/20/ C02102#4+0/ (+/#/%+#- 34#4'.'/43 (02 4*' 8'#23
1996 #/& 1997.
8
E/20/ C02102#4+0/ (+/#/%+#- 34#4'.'/43 (02 4*' 8'#2
2000.
9
E/20/ C02102#4+0/ (+/#/%+#- 34#4'.'/43 (02 4*' 8'#2
1999.
10
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4+0/,: Financial Analyst Journal: 24-34, J5/', 1999,
T#$-' 2.
11
"""" B'34 C0.1#/8, I/%. (+/#/%+#- 34#4'.'/43 (02 4*'
8'#23 1985 #/& 1986.
Tuesda"' Ma" $#' %#$$
Transactinn Databascs Updatc -
Pratt's 5tats, BIZCOMP5 and thc IBA
(}im Hilchner, Marci our)
1. Which of lhe lransaclion dalabas-
es do you use for smaII comanies
such as Iess lhan $1 miIIion`
(can pick more than one)
a. IZCOMIS 72%
b. DoneDeaIs 11%
c. IA 42%
d. Mergerslal 10%
e. Irall's Slal 74%
2. Which of lhe lransaclion dalabas-
es do you use for Iarger coma-
nies such as grealer lhan $20 miI-
Iion` (can pick more than one)
a. IZCOMIS 28%
b. DoneDeaIs 28%
c. IA 13%
d. Mergerslal 42%
e. Irall's Slal 82%
3. If you onIy have lhe usuaI mini-
maI dala concerning a lransaclion
do you usuaIIy reIy on lransaclion
dalabases as:
a. A rimary melhod and vaIue
2%
b. A secondary or corroboraling
melhod and vaIue 76%
c. Dismiss lhe melhod and vaIue
as unreIiabIe 22%
4. Have you ever had lroubIe
defending your use of lransaclion
dalabases vhere lhere vas onIy
minimaI dala`
a. Yes 51%
b. No 49%
5. Do you use lhe IA Direcl Markel
Dala Melhod`
a. Yes 33%
b. No 67%
6. Where lhere is minimaI dala on
lhe lransaclions vhal is lhe mini-
mum range of lransaclions lhal
can be reIied uon`
a. Zero 3%
b. One or lvo 1%
c. Three lo five 19%
d. Six lo len 50%
e. More lhan len 26% c
The eneish ModeI slarls vilh uliIiz-
ing lhe exisling anaIylicaI ralios and
aIies ils indexes lo deveIo a slrong
rediclor of earnings maniuIalion.
The slrenglh of lhe eneish ModeI is
lhal il aIies eighl unique indices,
bolh individuaIIy and coIIecliveIy.
Therefore, lhe forensic accounlanl can
deIoy lhese findings lo deveIo a
roadma for furlher invesligalion. c