Open AccessMeasuring fraud and earnings management by a case of study: Evidence from an international family business
Author(s) -
Alicia Ramírez Orellana,
María J. MartínezRomero,
Teresa Mariño-Garrido
Publication year - 2017
Publication title -
european journal of family business
Language(s) - English
Resource type - Journals
eISSN - 2444-8788
pISSN - 2444-877X
DOI - 10.24310/ejfbejfb.v7i1-2.5016
Subject(s) - earnings management , bankruptcy , accounting , commit , accrual , business , leverage (statistics) , index (typography) , earnings , context (archaeology) , actuarial science , audit , finance , statistics , paleontology , mathematics , database , world wide web , computer science , biology
The aim of this study is to estimate the probability of fraud and earnings management for a specific Spanish family business, Pescanova. In the context of financial statements, the Beneish model is used to detect fraudulent behavior. Our findings reveal that Pescanova presented propensity to commit fraud and carried out aggressive accounting practices before the disclosure of its financial problems. The manipulation index and the probability of manipulation are used as indicators of fraud and earnings management. Results also show that Pescanova made aggressive accounting practices, through the manipulation of Day's sales in receivables indexand Total accruals to total assets. Next, we provided evidence that the Sales Growth index and Leverage index are aligned with the position of technical default shown by the pre-bankruptcy board of Pescanova. Our main contribution is demonstrating the validity of the model for the case of Pescanova. Therefore, the application of the Beneish model might have detected fraudulent behavior, in the years prior to Pescanova's collapse.