APPLICATION OF FINANCIAL STATEMENT ACCOUNTS TO ASSESS BUSINESS QUALITY, FRAUD RISK, AND BANKRUPTCY RISK
Keywords:
Financial Ratios, Beneish M-Score, Altman Z-ScoreAbstract
The study focuses on examining the redundancy of accounting items used in financial statements for financial instruments that are applied and interpreted differently. The financial instruments include: 1. Financial Ratios,
2. Beneish M-Score Model, and 3. Altman Z-Score Model. The aim is to extract the accounting items (variables) from these financial instruments, derived from financial statements, to provide data for the development of future financial tools that reduce redundancy in the use of accounting items across different instruments. A literature review reveals that financial ratios are used to assess liquidity and financial performance, the M-Score model is employed to detect accounting fraud, and the Altman Z-Score model is used to predict bankruptcy. For managers, shareholders, auditors, and general stakeholders, there is frequent reuse of financial statement figures for calculations.
The study finds that Financial Ratios, Beneish M-Score, and Altman Z-Score are still widely used in business and rely on the same accounting figures from financial statements for their calculations. Extracting the shared accounting variables from the financial statements reveals that total assets, total liabilities, and revenue (sales) are used by all three tools. Additionally, there are other accounting variables that are either used or not used across these tools. The identified accounting variables can serve as a basis for creating or developing tools that integrate the strengths of all three tools, addressing their shortcomings. This integration will reduce the time and complexity of calculations and the use of financial statement figures. Consequently, it enables efficient tracking of financial liquidity, fraud prevention, and bankruptcy warnings, ensuring sustainable going concern for the business.
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