GAP GYAN

A GLOBAL JOURNAL OF SOCIAL SCIENCES

( ISSN – 2581-5830 )
Impact Factor – SJIF – 4.998, IIFS - 4.375
Globally peer-reviewed and open access journal.

FINANCIAL STATEMENT FRAUD DETECTION MODELS:

AN EXPLORATORY STUDY
Ms. Yamuna Parikh, Dr. Kamini Shah
Research Scholar
Department of Business Studies
Sardar Patel University
Vallabh Vidyanagar
Gujrat-388120.
Mobile: 8200235705
Email: [email protected]

Associate Professor
Department of Business Studies
Sardar Patel University
Vallabh Vidyanagar
Gujrat-388120.
Mobile:9825271629
Email: [email protected]

Abstract
Financial Statement Fraud (FSF) is increasing rapidly in numbers and it creates a bad impact on the economy.
Hence, it is necessary to detect such activities with the help of various FSF detection models. This study aims to
discuss various FSF detection models that emphasize on detection of fraud from the financial information provided
by the corporate entity in their financial reports. The present study uses a descriptive research design where the
information has been obtained through various sources such as research journals, thesis and news articles. This
study tries to cover the conceptual information about various FSF detection model available that gives in-depth
insights into the model and its workings.

Keywords: Financial statement fraud, Beneish M-Score, Dechow F- Score, Pustylnick P-Score, Z-Score, Montier C-
Score

INTRODUCTION

The joint-stock company has acquired a unique identity and it is being treated as a separate legal entity. The
management of the company is in the hands of the Board of Directors on behalf of the shareholders for the
growth of the company and in turn maximizing wealth of shareholders. But in recent years frauds have been
increased. So, to retain, attract and maintain the trust of the company’s investors, creditors and employees;
firms must present true and fair information in their financial statements (Omoye & Eragbhe, 2014) Financial
statements are a key statutory document of the company which shows the financial performance and economic
aspect of the company. Promoters and management of the company may manipulate financial statements to
deceive investors and other stakeholders by overstating assets, profit, revenue, understating depreciation,
losses, expenses and other liabilities. (K P, 2021) Enron, WorldCom, Tyco, HealthSouth and Lehman Brothers
are the notable accounting scandals that occurred over the last two decades around the world. (Corporate
Finance Institute, 2015 to 2022). In India, we have witnessed many corporate frauds in recent years such as
Satyam Computers, Kingfisher Airlines, Jet Airways, Bhushan Steel, 2G Spectrum, PNB Bank, Hawala Scam, etc.
(Chakraborty, 2020) These frauds harm the stock market and Indian economy as a whole. Hence, it is necessary
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to detect such activity with the help of various financial statement fraud detection models which provide red
flags or signals of earning manipulation or mischiefs in financial reports based on financial information
provided by the entity.

REVIEW OF LITERATURE

Aghghaleh, Mohamed, & Rahmat, 2016 compared the abilities of two financial information-based models
namely the Beneish M-Score and Dechow F-Score, to check, detect and predict FSF for listed companies from
2001 to 2014 in Malaysia. The study reveals that both M-Score and F-Score models are efficient in predicting
fraudulent and non-fraudulent firms with an average accuracy of 73.17% and 76.22% respectively. The study

GAP GYAN – Volume - V Issue III 21

July – September 2022
Special Issue
 GAP GYAN
A GLOBAL JOURNAL OF SOCIAL SCIENCES
( ISSN – 2581-5830 )
Impact Factor – SJIF – 4.998, IIFS - 4.375
Globally peer-reviewed and open access journal.
also points out that the F-Score model better performs than the M-Score model in the sensitivity of predicting
fraud cases with 73.17% compared to 69.51%. On the efficiency aspect, the result of the F Score model explains
lower type II error at 26.83%compared to the M Score model as it is 30.49%. This study also suggests that the F
Score model is a better model to detect FSF among Malaysian companies.
Bhavani & Amponsah, 2017 attempted to compare two information-based accounting tools namely Beneish M-
Score and Altman-Z Score for the effective detection of financial statement fraud in corporate entities. In this
study, data was taken from Toshiba’s published corporate financial statement from 2008 to 2014, the primary
objectives of the study aim to detect malfeasance using the two models. The methodology used in this research
is as suggested by M-Score and Z-Score. The study revealed that the Beneish model was not able to detect any
fraud, the Atman Z-Score Provided some signal that the company’s financial statements were flawed. Even
though the Beneish model is admired for predicting fraudulent financial statements. The study suggests that
selecting the right forensic tool can influence the result of the detection.
Anh & Linh, 2016 explained that earning management is one of the most significant issues related to financial
statements as well as a critical topic in accounting. They examined earning manipulation detection among
Vietnamese companies listed on the Hochiminh stock exchange with the help of the Beneish M-Score model for
a sample of 229 non-financial Vietnamese companies listed on HOSE from 2013 to 2014. The study revealed
that 48.4% of non-financial Vietnamese companies listed on the HOSE were involved in earning manipulation
and the sample observation fit the Beneish M-Score model. The study suggested that the M-Score model is a
useful technique for detecting earning management in a company and it could be applied for an improvement
in financial reporting quality and a better guard for investors.
Mohamed & Schachelor, 2014 examined the possible means available to company managers, auditors, and
regulators of detecting, preventing, and reacting to FSF in Malaysian commercial companies. The study was
conducted with the help of interviews with company managers, auditors, and regulators. Findings suggest that
Management integrity and the development of sound internal systems to prevent fraud in a financial statement
can help to reduce the probability of financial statement fraud taking place.
Mehta, Patel, Patel, & Purohit, 2012 explain that financial statement fraud is increasing rapidly in numbers all
around the world. In India Satyam computers fraud was one of the biggest frauds in past, led by its founder
which result in abolish of the trust of investors and breaking down the value of stock price. This paper
examines financial statement data of Indian companies listed on the Bombay stock exchange to develop a
model for detecting factors associated with a fraudulent financial statement by way of exercise of Auditors
report and logistic regression techniques to develop a model to find out factors associated with FFS.

DISCUSSION OF MODELS

Numerous techniques are available to detect fraud such as data mining, machine learning, artificial intelligence,
neural networks, ratio analysis so on. In this study, various financial statement fraud detection models are
discussed as follows which can detect fraud with the help of information provided in an entity’s financial
statement.

Beneish M-Score
Professor Messod Beneish in the year 1999, developed a model called the Beneish M-Score. This model is
helpful to classify fraudulent and non-fraudulent companies with the help of information provided by the
company in their financial statement. M-Score is generated with the help of eight variables that can be
calculated with the information provided in the financial statements of the company (Beneish, 1999) M-Score is
calculated from the following formula.
M = −4.84 + 0.92 × DSRI + 0.528 × GMI + 0.404 × AQI + 0.892 × SGI + 0.115 × DEPI − 0.172 × SGAI
+ 4.679 × TATA − 0.327 × LVGI
Eight variables of Banish model are described in Table 1
Table 1 Beneish M-Score
Name of index Formulas
𝑁𝑒𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠𝑡
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( )
𝑆𝑎𝑙𝑒𝑠𝑡
Days Sales in Receivables Index (DSRI)
𝑁𝑒𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠𝑡−1
( )
𝑆𝑎𝑙𝑒𝑠𝑡−1
[(𝑆𝑎𝑙𝑒𝑠𝑡−1 − 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑𝑡−1 )/𝑆𝑎𝑙𝑒𝑠𝑡−1 ]
Gross Margin Index (GMI)
[(𝑆𝑎𝑙𝑒𝑠𝑡 − 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑠𝑜𝑙𝑑𝑡 )/𝑆𝑎𝑙𝑒𝑠𝑡 ]
[1 − (𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠𝑡 + 𝑃𝑃𝐸𝑡 / 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠𝑡 )]
Asset Quality Index (GMI)
[1 − ( 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠𝑡−1 + 𝑃𝑃𝐸𝑡−1 /𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠𝑡−1 )]
𝑆𝑎𝑙𝑒𝑠𝑡
Sales Growth Index (SGI)
𝑆𝑎𝑙𝑒𝑠𝑡−1

GAP GYAN – Volume - V Issue III 22

July – September 2022
Special Issue
 GAP GYAN
A GLOBAL JOURNAL OF SOCIAL SCIENCES
( ISSN – 2581-5830 )
Impact Factor – SJIF – 4.998, IIFS - 4.375
Globally peer-reviewed and open access journal.
[𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛𝑡−1 /𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛𝑡−1 + 𝑃𝑃𝐸𝑡−1 ]
Depreciation Index (DEPI)
[𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛𝑡 / 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 + 𝑃𝑃𝐸𝑡 ]
Sales, General and Administration Index [𝑆𝑎𝑙𝑒𝑠, 𝑔𝑒𝑛𝑒𝑟𝑎𝑙 𝑎𝑛𝑑 𝑎𝑑𝑚𝑖𝑛𝑖𝑠𝑡𝑟𝑎𝑡𝑖𝑣𝑒 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠𝑡 /𝑠𝑎𝑙𝑒𝑠𝑡 ]
(SGAI) [𝑆𝑎𝑙𝑒𝑠, 𝑔𝑒𝑛𝑒𝑟𝑎𝑙 𝑎𝑛𝑑 𝑎𝑑𝑚𝑖𝑛𝑖𝑠𝑡𝑟𝑎𝑡𝑖𝑣𝑒 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠𝑡−1 /𝑆𝑎𝑙𝑒𝑠𝑡−1 ]
𝑇𝑜𝑡𝑎𝑙 𝐴𝑐𝑐𝑟𝑢𝑎𝑙𝑠𝑡
Total Accruals to Total Assets Index (TATA)
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠𝑡
[𝐿𝑇𝐷𝑡 + 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠𝑡 /𝑇𝑜𝑡𝑎𝑙𝑠 𝐴𝑠𝑠𝑒𝑡𝑠𝑡 ]
Leverage Index
[𝐿𝑇𝐷𝑡−1 + 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠𝑡−1 / 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠𝑡−1 ]
(Beneish, 1999)
If the calculated M-Score value is greater than -2.22 it indicates that the company is likely to be manipulating its
financial statement. An M-Score value less than -2.22 indicates that the company does not manipulate its
financial statement. (Beneish, 1999)

Dechow F- Score:
The model was developed by Dechow et al. (2011) to detect the probability of fraudulent financial reporting
and provide red flags and signals about probable financial statement fraud. This model examines variables that
can be easily measurable from the information provided by any entity. (Dechow, GE, Larson, & Sloan, 2011).
This model examined a total of 28 variables clustered around the five types of information to identify the
capability to differentiate between fraudulent and non-fraudulent firms. The five types of information are (i)
Accrual Quality, (ii) Financial Performance, (iii) Non-Financial Measures, (iv) Off-Balance-Sheet Activities, And
(v) Market-Based Measures. Based on the examination of variables, three logistic regression models were
calculated, yielding models with the highest discriminatory power of 7, 9 and 11 variables, respectively. Model
1 contains variables from the information provided by the company in their financial statement. Model 2 adds
off-balance sheet and non-financial measures and Model 3 contains market-related variables. (Dechow, GE,
Larson, & Sloan, 2011) In this study, Model 1 is widely used as it can detect probable manipulation using
information from an entity's financial statements.

Calculation of Model 1:
Table 2 Dechow F Score

Items Formulas
(𝛥𝑊𝐶 + 𝛥𝑁𝐶𝑂 + 𝛥𝐹𝐼𝑁)
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
RSST (Richardson,
• WC (Net Working Capital) = [Current Assets-Cash and Short-term
Sloan, Soliman and
Investments] - [Current Liabilities-Debt in Current Liabilities];
Tuna) Accrual
• NCO (Net non-current Operating Assets) = [Total Assets-Current Assets-
Investment and Advances - [Total Liabilities-Current liabilities-long term debt];
• FIN (Net Financial Assets) = [Short term investments + Long term
investment] - [Long term Debt + Debt in current Liabilities+ Preferred Stock]
ΔREC (Change in 𝛥 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
Receivables) 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
ΔINV (Change in 𝛥 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦
Inventory) 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
[𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 − 𝑃𝑃𝐸 − 𝐶𝑎𝑠ℎ 𝑎𝑛𝑑 𝑐𝑎𝑠ℎ 𝑒𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠]
Soft Assets
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Δ Cash Sales Percentage change in cash sales [Sales-Δ Accounts Receivables]
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠𝑡 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠𝑡−1
Δ ROA −
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠𝑡−1
ISSUE 1 if the firm issued securities during year t, 0 otherwise
Interpretation of F score
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F score less than 1 Normal or below normal risk

F score ≤ 1 to ≤ 1.85 Risk is above normal level
F score 1.85 < to ≤ 2.45 High Risk
F Score > 2.45 Very High Risk
Source: (Dechow, GE, Larson, & Sloan, 2011)
𝑉𝑎𝑙𝑢𝑒 = − 7.893 + 0.790 × 𝑅𝑆𝑆𝑇 + 2.518 × 𝛥𝑅𝐸𝐶 + 1.191 × 𝛥𝐼𝑁𝑉 + 1.979 × 𝑆𝑂𝐹𝑇𝐴𝑆𝑆𝐸𝑇𝑆
+ 0.11 × 𝛥𝐶𝐴𝑆𝐻𝑆𝐴𝐿𝐸𝑆 − 0.932 × 𝛥𝑅𝑂𝐴 + 1.029 × 𝐼𝑆𝑆𝑈𝐸
After the getting value from the above equation, it is converted into probability as follow:
𝑒 𝑣𝑎𝑙𝑢𝑒
Probability =
(1 + 𝑒 𝑣𝑎𝑙𝑢𝑒 )

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 GAP GYAN
A GLOBAL JOURNAL OF SOCIAL SCIENCES
( ISSN – 2581-5830 )
Impact Factor – SJIF – 4.998, IIFS - 4.375
Globally peer-reviewed and open access journal.
The probability is then divided by the unconditional probability of Misstatement (= 0.0037) to find F-Score.
(Dechow, GE, Larson, & Sloan, 2011)

Altman Z- Score:
This model was developed by Altman in the year 1968. This model helps to predict bankruptcy by the
examining financial health of the company in addition to its use in detecting earning manipulation. This model
is based on Multiple Discriminant Analysis, which differentiates between surviving and failing companies using
the information provided by the company in their financial statement. (Saleh, Aladwan, Aladwan, & Saleh,
2021)
Calculation of Z- Score
𝑍 𝑆𝑐𝑜𝑟𝑒 = 1.2𝑋1 + 1.4𝑋2 + 3.3𝑋3 + 0.6𝑋4 + 1𝑋5
Table 3 Altman Z-Score
Sr. No. Formulas
𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝑐𝑎𝑝𝑖𝑡𝑎𝑙
1. 𝑋1 =
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔
2. 𝑋2 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
𝐸𝑎𝑟𝑛𝑖𝑛𝑔 𝐵𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑇𝑎𝑥(𝐸𝐵𝐼𝑇)
3. 𝑋3 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
𝑀𝑎𝑟𝑘𝑒𝑡 𝐶𝑎𝑝𝑖𝑡𝑎𝑙𝑖𝑠𝑎𝑡𝑖𝑜𝑛
4. 𝑋4 =
𝑇𝑜𝑡𝑎𝑙 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Net Sales
5. X5 =
Total assets
Interpretation of Z Score:
• Z- Score is greater than 2.67 = safe zone
• Z- Score is greater than 1.81 and less than 2.67 = grey zone
• Z-Score is less than 1.81 = distress zone
Source: (Saleh, Aladwan, Aladwan, & Saleh, 2021)

Pustylnick P-Score:
Igor Pustylnick developed a model known as P-Score model to detect earning manipulation based on the
Altman Z-Score model. Pustylnick in his research observed that more than 50% of the cases of manipulation
are based on improperly recognized revenue or misstatement of non-current assets such as goodwill based on
a Deloitte report. (Pustylnick, 2011). The formula of the P-Score is as same as Altman’s Z-Score but with minor
modifications made by Pustylnick. P-Score Model considers Revenue and Equity instead of Net Income and
Working Capital. Pustylnick changed these two coefficients from the Z Score model where only numerators of
the fractions were modified but the numbers of coefficients were same. The first changed coefficient was
Shareholder’s Equity and the second was Assets Turnover Ratio. (Koshti, 2021) The P Score can be generated
via following equation:

𝑃 𝑆𝑐𝑜𝑟𝑒 = 1.2 × 𝑋1 + 1.4 × 𝑋2 + 3.3 × 𝑋3 + 0.6 × 𝑋4 + 1.0 × 𝑋5

Table 4 Pustylnick P-Score Model

Sr. No. Formulas
1. 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟 ′ 𝑠 𝐸𝑞𝑢𝑖𝑡𝑦
𝑋1 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
2. 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠
𝑋2 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
3. 𝐸𝐵𝐼𝑇
𝑋3 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
4.
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𝑀𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦

𝑋4 =
𝐵𝑜𝑜𝑘 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑇𝑜𝑡𝑎𝑙 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦
5. 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝑋5 =
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
Source: (Pustylnick, 2011)

ΔP Score is calculated with the following formula:

𝑃(𝑡) − 𝑃(𝑡 − 1)
𝛥𝑃 =
𝑃(𝑡 − 1)

GAP GYAN – Volume - V Issue III 24

July – September 2022
Special Issue
 GAP GYAN
A GLOBAL JOURNAL OF SOCIAL SCIENCES
( ISSN – 2581-5830 )
Impact Factor – SJIF – 4.998, IIFS - 4.375
Globally peer-reviewed and open access journal.
𝑍(𝑡) − 𝑍(𝑡 − 1)
𝛥𝑍 =
|𝑍(𝑡 − 1)|

The calculated value of ΔP is then compared with the value of ΔZ, If the value of ΔP would be greater than ΔZ
than there is a possibility of misstatement. (Pustylnick, 2011)

Montier C -Score:
The C Score was developed by James Montier in year 2009 to know whether the firms are cooking its
information in the financial statements or not. In it various six criteria are observed to detect the earning
manipulation. These six criteria are discussed in the following table.

Table 5 Montier C Score

Sr. Variables Indication
No.
[1] Growing difference An increasing difference between net income and cash flow from operation
between net income indicate that earnings are being manipulated. In general, management has less
and cash flow from control over a company's cash flow than it has over its earnings. Earnings can
operations. be overstated by using highly subjective estimations such as depreciation, bad
debt, and pension returns, etc. An increasing Difference between net income
and cash flow from operations indicates red flags of manipulation in this
Model.
[2] Increasing days sales Account receivables are growing faster than sales, as seen by an increasing
outstanding (DSO) Days sales outstanding. The primary goal of this measurement is to detect
channel stuffing. (Sending inventory to customers) An increasing Days sales
outstanding (DSO) provide a signal of manipulation in this Model.
[3] Growing day’s sales of Slowing sales are indicated by rising inventory, which is negative indication for
inventory (DSI) the company. An increasing Day sale of inventory (DSI) indicates financial
misstatements in this Model.
[4] Increasing Other Top management may know that investors frequently examine DSI and DSO,
current assets to thus to hide the things which they don’t want investors to notice they may use
revenues other current assets. An increasing Other current asset to revenues indicates
earning manipulation in this Model.
[5] Declines in Firms can easily change the estimate of useful asset life to meet a quarterly or
depreciation relative yearly profit target. Decreasing depreciation relative to gross property provide
to gross property a signal of manipulation in this Model.
[6] High total asset Some firms use their acquisition strategy to distort their earnings. High asset
growth growth companies receive a signal of manipulation in this Model.
(Montier, 2009)
These criteria are scored in a simple binary mode, if. company has increased day sales outstanding it will
receive a score of 1. Then summed to all these criteria score to get the final C- Score which is bounded from 0
(no evidence of earning manipulation) to 6 (all the red flags are present) (Montier, 2009).

CONCLUSION

Financial statement fraud is increasing rapidly in numbers and it creates a hurdle to the growth of the
economy. Forensic accountants, auditors, and practitioners can detect fraud using a variety of techniques such
as data mining, machine learning, artificial intelligence, neural networks, ratio analysis, and so on. This study
describes the various fraud detection model such as Beneish M-Score, Dechow F- Score, Pustylnick P-Score,
Altman Z-Score, Montier C-Score which provide red flags or signal of fraud with the use of information from the
financial statement. From the past literature it was observed that numerous studies covering M-score are
available for financial statement fraud detection while other model have lesser exposure to detect financial
https://www.gapgyan.org/

statement fraud such as Dechow F- Score, Pustylnick P-Score, Montier C-Score these scores are also helpful tool
for predicting misstatement. In India also the M-score is explored more compare to other score. Auditors,
investors, regulatory bodies can also use Dechow F- Score, Pustylnick P-Score, Altman Z-Score, Montier C-Score
to detect financial statement fraud. This way probable manipulation can be detected and stricken measure can
be applied to such fraudulent companies.

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