BENEISH M-SCORE AND ALTMAN Z-SCORE TO PREDICT FINANCIAL

STATEMENT FRAUD AND FINANCIAL PERFORMANCE

(Study Case of PT Garuda Indonesia Tbk)

Naufal Ibrahim
Faculty of Economics and Business
[email protected]

Supervisor:
Atim Djazuli

ABSTRACT: This study aims to predict financial statement fraud and performance by using
Beneish M-Score and Altman Z-Score of PT. Garuda Indonesia Tbk from 2014 until 2018. This
research is replication with differences in object and time of research. This study is descriptive
quantitative with case study research approach, where describing the effect that happened to the
company financial statement fraud and performance. The study uses secondary data given from
the financial report of PT. Garuda Indonesia Tbk. through the company website. In concluding,
PT. Garuda Indonesia Tbk. has been indicated for financial statement manipulation in 2016 and
2018. Meanwhile, the financial performance in 2014 until 2018 is on distressed.

Keywords: Financial Statement Fraud, Financial Performance, Beneish M-Score, Altman Z-

Score, Financial Analysis

ABSTRAK: Penelitian ini bertujuan untuk memprediksi kecurangan laporan keuangan dan
performa keuangan dengan menggunakan Beneish M-Score dan Altman Z-Score pada PT.
Garuda Indonesia Tbk. dari tahun 2014 sampai 2018. Penelitian ini merupakan replika dengan
perbedaan pada objek dan waktu penelitian. Penelitian ini menggunakan pendekatan descriptive
quantitative dimana menjelaskan hubungan antara kecurangan laporan keuangan dan performa
keuangan. Penelitian ini menggunakan data sekunder bersumber dari laporan keuangan PT.
Garuda Indonesia Tbk. yang publikaiskan oleh perusahaan tersebut pada website perusahaan.
Hasil yang didapatkan bahwa PT. Garuda Indonesia Tbk. memiliki indikasi kecurangan laporan
keuangan pada tahun 2016 dan 2018. Sedangkan, untuk perfoma keuangan mengindikasikan pada
kebangkrutan.

Keywords: Financial Statement Fraud, Financial Performance, Beneish M-Score, Altman Z-

score, Financial Analysis
INTRODUCTION Measurements that are used include days
The ability to recognize and deal sales in receivables index, gross margin
with complex business ethics issues has index, asset quality index, sales growth
become a significant priority in twenty- index, depreciation index, sales general
first–century companies. In recent years, and administrative expenses index,
a number of well-publicized scandals leverage index, and total accrual to total
resulted in public outrage about assets index.
deception and fraud in business and a Bankruptcy of a company might be
subsequent demand for improved related towards fraud. Irianto (2003) in
business ethics and greater corporate (Kartikasari et al, 2010) stated that
responsibility (Ferrell at al, 2015). reasons of the collapse of giant
ACFE Indonesia (2016), based on companies caused by manipulating their
their survey, 154 or 67% of respondents financial report.
choose corruption as the biggest fraud in
Indonesia. Followed by assets LITERATURE REVIEW
misappropriation was chosen by 71 Fraud
respondents or 31% of total respondents. Fraud is a generic term and
Fraud in forms of financial statement embraces all the multifarious means
became the third-largest fraud that which human ingenuity can devise,
chooses by 4 respondents or 2%. The which are resorted to by one individual,
differences are caused by different to get an advantage over another by false
respondent’s knowledge and experience. representations
It was caused by many citizens
publication about corruption Types of Fraud
Financial institutions use variety of According to Albrecht (2011), types
fraud prevention models to address this of frauds are classified into:
problem. However, fraudsters are • a. Employee embezzlement
adaptive, and over time they conceive • b. Vendor fraud
several ways of intruding such • c. Customer fraud
protective models. Despite the fact that • d. Management fraud (financial
the best effort of financial institutions, statement fraud)
law enforcement, and government • e. Investment scams and other
financial fraud grow continuously. consumer fraud
Fraudsters nowadays can be a very • Other (Miscellaneous) types of
intentive, intelligent, and fast fraternity. fraud
Financial report fraud needs
detective tools to determine the Fraud Triangle
manipulation. In the article “the The fraud was first explained by
Detection of Earnings Manipulation” Donald R. Cressey that the factors can
(Financial Analyssts Journal, September be the reasons behind someone
– October 1999) Messod D. Beneish committing for doing fraud are
explained that to indicate manipulation explained in the fraud triangle. Those
of the financial report when: drastically reasons are pressure, opportunity, and
increase receivables, the gross margin rationalization are the three components
worsen, decrease on assets, increase on that contribute to a person violating trust
sales, and increase of accruals. and committing fraud.
 process that allows a debtor to work out
Financial Statement an orderly plan to either settle debts or
Managers use financial analysis to liquidate assets and distribute them to
identify situations needing attention; creditors is on the increase.
potential lenders use financial analysis to
determine whether a company is Financial Ratios
creditworthy; and stockholders use Financial ratios are numerical values,
financial analysis to help predict future and those are retrieved from the
earnings, dividends, and free cash flow company’s financial statements.
(Ehrhardt et al, 2011). According to Financial ratios are defined as
Robinson et al (2015), reports by relationships determined by a company’s
companies is meant to provide financial information and used for
information about a company’s comparison purposes (Saleem &
performance, financial position, and Rehman 2011).
changes in a financial position that is
useful to a wide range of users in making RESEACH METHOD
economic decisions This research is using quantitative.
The population of this research is PT.
Financial Statement Analysis Garuda Indonesia Tbk’s financial report.
According (Sinha, 2012) financial The sample of this research a is financial
statement present facts, but some facts report of PT. Garuda Indonesia Tbk’s
do not convey the same bearings to all. from 2013 until 2018. The approach of
this study is using descriptive approach.
Financial Statement Fraud Secondary data in form of financial
Financial statement fraud is a report of PT. Garuda Indonesia Tbk. Are
deliberate attempt by corporations to use to be evaluate.
deceive or mislead users of published
financial statements, especially investors Beneish M-Score
and creditors, by preparing and To evaluate the earnings manipulation
disseminating materially misstated Beneish M-Score with the formula as
financial statements (Rezaee, 2005). follow:
M = -4,84 + 0,92(DSRI) + 0,528(GMI) +
0,404(AQI) + 0,892(SGI) + 0,115(DEPI) -
Earnings Manipulation 0,172(SGAI) + 4,679(Accruals) - 0,327(LVGI)
According to Healy and Wahlen
(1999) in Roychowdhury (2006), X1. DSRI(Days Sales Receivable
“Earnings management occurs when Index)
managers use judgment in financial Days Sales ReceivableIndex is use
reporting and in structuring transactions to find out the distrotion on account
to alter financial reports to either mislead receivable from the revenue
some stakeholders about the underlying inflation.
economic performance of the company ( Account Receivable t :Sales t)
or to influence contractual outcomes that ( Account Receivable t−1 :Sales t−1)
depend on reported accounting practices.

Bankruptcy and Distress X2.GMI (Gross Margin Index)

According to Albrecht (2012) the
occurrence of bankruptcy is the legal
When the margin got worse the marketing cost indicate for earning
corporate has potential to done manipulation
earnings manipuation
Sales t−1−Cost of Sales t−1
[ ]
Sales t−1 Sales , general ,∧administrative expenset
( Sales t−Cost of Sales t ) Sales t
[ ] Sales , general ,∧administrative expense t−1
Salest
Sales t−1

X3. AQI (Asset Quality Index)

An increase in AQI indicates that X7. LVGI (Leverage Index)
additional expenses are being Leverage Index to catch when the leverage
increased will be resulting tighten
capitalized to avoid writing-off to
( LTD t+Current Liabilities t )
the statement of comprehensive
income in order to preserve profit Total Assets t
(Harrington, 2005) ( LTD t−1+Current Liabilities t−1 )
(Current asstes t+ PP∧E) Total Assets t−1
1−[ ]
Total Assets t
X8.TATA (Total Accruals to Total Asset)
( Current Assets t−1+ PP∧E t−1 ) Total Accrual to Total Asset is to catch the
1−[ ]
Total Assets t−1 accounting profit that not supported by cash
profit
Income Before Extraordinary Item
−Operating Cash flow
X4. (SGI) Sales Growth Index Total Assets
Harrington (2005) John MacCarthy
(2017) in observed that, companies Beneish M-Score has a cutoff if the M
with high growth rate find value is greater than -2.22 means that the
themselves highly motivated to financial statement of a company has
commit fraud when the trends been manipulated. Each variable also
reverse. able to catch the status of them by using
Sales t index parameter as follow:
=
Sales t−1
Table 1 Beneish M-Score Index
X5. DEPI (Depreciation Index) Parameter
Depreciation Index is to measure
depreciation level as a form of
earnings manipulation.
=
[ ( Depreciationt−1 ) ¿¿ (PPE t−1+ Depreciation t−1)]
¿¿
¿
X6. SGAI (Sales Growth and
Administrative Index)
Sales, General, and Administrative
Index to measure decrease on cost Altman Z-Score is used as to measure
efficiency on administrative and the performance of the company by
financial distress of PT. Garuda Indonesia
Tbk with the formula as follow: FINDING AND DISCUSSION
Beneish M-Score
Z-Score = 1.2X1 + 1.4X2 +3.3X3 + Beneish M-Score is an analysis technique
0.6X4 + 0.999X5 to detect financial report manipulation in
form of earnings manipulation. Beneish M-
1. Working Capital to Total Assets
Working Capital to Total Asset is ratio to
Score applied into PT. Garuda Indonesia
measure company’s liquidity by measuring Tbk. financial report. From calculating the
company’s ability to fulfill short term Beneish M-Score, the results as follow:
debts.

WorkingCapital
X1 =
Total Asset
Table 2
2. Retained Earnings to Total Assets
Retained earnings to total assets are
shows of ability of retained earnings in
generating the profit compared with the
total asset

Retained Earnings In Table 2 are the results of values from

X2 = Total Asset each variable then compared to the Beneish
M-Score parameter index. In 2014, two
3. Earnings Before Interest and Tax to Total variables indicated contribute to earnings
Assets manipulations. Those variables are Gross
Earnings before interest and taxes to Margin Index and Leverage Index. Then,
total assets is to measure the ability of Asset Quality Index and Sales, General,
company generate profit by its assets. and Administrative Index that indicated as
Earnings Before Interest ∧Taxes “grey.” The rest of the variables are not
X3 = Total Asset shown any “grey” neither “Manipulator.”
In 2015 the variables that indicate “Grey”
4. Market Value of Equity to Book Value of and “Manipulated” slightly better by there
Liabilities are only two variables. Each of them is
Earnings before interest and taxes to Days Sales Receivables Index and
total assets is to measure the ability of
Depreciation Index. In 2016, the variables
company generate profit by its assets.
that indicate had been manipulated are
Market Value of Equity increase. The Days Sales Receivable Index
X4 = increased into reached manipulated. as
Book Value of Liabilities
Also, Days Sales Receivable Index,
5. Sales to Total Assets leverage Index also back into manipulated
Sales to total assets used for measuring although in 2015 not-manipulated. In 2017
the company’s ability to utilize their asset the potential of earnings manipulation
to generate profit. increased by the increased of variables that
Sales indicate as “grey” namely: days sales
X5 = Total Asset receivables index, asset quality index, and
sales, general and administrative index. The
variables which indicate as “manipulator” the Beneish M-Score as what is the
are: Gross Margin Index and Leverage background of the company for doing fraud
Index. into their earnings.
Year X1+X2+X3+X4+X5 Result
2014 1.00 Distress
2015 1.40 Distress
2016 1.14 Distress
2017 0.87 Distress
2018 0.91 Distress

Table 3.

The bankruptcy analysis of PT.

Garuda Indonesia Tbk by using Altman
Z-Score reveals that they experienced
financial distress in 2014, 2015, 2016,
2017 and 2018 which the result of
Altman Z-Score are less than 1.81. Some
One of the factor of the variable that
contribute towards the low value of Z-
Futher more, from table 2 shows the Score is the working capital to total
Beneish M-score of PT. Garuda Indonesia asset. As the value of current asset are
Tbk from 2014 until 2017 that has been less than the current liabilities, the
calculated. The M-Score values of PT. working capital of PT. Garuda Indonesia
Garuda Indonesia Tbk. are: -2.568; -2.583; Tbk. are on minus value. The result of
and -2.302 in 2014; 2015; and 2017 Altman Z-Score PT. Garuda Indonesia
respectively are less than -2.22 as the
Tbk using Altman Z-Score on this study
benchmark of Beneish M-Score, meaning
earnings in those years of PT. Garuda slightly different with the result of study
Indonesia Tbk. was not manipulated. done by Arief Yuswanto Nugroho
However, M-Score values of PT. Garuda (2018) entitled Model Analisis Z Score
Indonesia Tbk in 2016 and 2018 has been Terhadap Prediksi Kebangkrutan (Studi
manipulated with values of -2.030 and - pada PT. Garuda Indonesia, Tbk tahun
1.460 means greater than -2.22. 2015 – 2017). On the study revealed
Altman Z-Score that PT. Garuda Indonesia Tbk are on
The Altman Z-Score is the tool that gray area. The approach of the study was
predicts the performance of a company by use manufacture non-listed company to
categorized into safe, grey, and distress. calculate the Altman Z-Score.
The relation between Altman Z-Score with
Discussion maximize to increase the value of
Beneish M-Score and Altman Z- working capital rather than using the
score are used in this research to reveal current liabilities.
the financial statement fraud and
financial performance of PT. Garuda CONCLUSION AND
Indonesia Tbk. The data are collected by RECOMMENDATION
PT. Garuda Indonesia Tbk’s financial Conclusion
statement from 2013 until 2018. After This research applied Beneish M-Score
the data are collected, then data are as proxies to determine the possibility of PT.
proceeded by Beneish M-Score and Garuda Indonesia Tbk. in doing
Altman Z-Score’s variables. From the manipulation towards their financial
result that was gain from the calculation, statement. To know the performance of the
it can be concluded that from two company, Altman Z-Score is used to
variables of Beneish M-Score PT. determine the financial condition of PT.
Garuda Indonesia Tbk. has manipulated Garuda Indonesia Tbk.
its financial statement in 2016 and 2018 This research has a purpose to know the
as the values are greater than -2.22 correlation of Beneish M-Score and Altman
(Beneish, 1999). Yet, from some years Z-Score in detecting financial statement
although The financial performance manipulation and financial performance of
which measured by Altman Z-Score is PT. Garuda Indonesia Tbk.
showing that condition of PT. Garuda
Indonesia Tbk are remain distressed in Based on the result of research and
five consecutive as the results on 2014 discussion can be concluded that:
until 2018 is below 1.81 (Altman,1968). 1. Based on Beneish M-Score, PT.
Garuda Indonesia Tbk has the potential
Research Implication to make financial statement fraud by
The implication of this study can manipulating their earnings in 2016
provide insight and knowledge to and 2018.
researchers and get an overview of the 2. Based on Beneish M-Score, PT.
financial statement fraud and its relation Garuda Indonesia Tbk does not have
with the company’s performance of PT. the potential to make financial
statement fraud by manipulating their
Garuda Indonesia Tbk using the Beneish
earnings in 2014, 2015, and 2017.
M-Score and Altman Z-Score. In 3. PT. Garuda Indonesia Tbk has six
addition, the implication of the results of variables that are categorized as “grey”
this study for PT. Garuda Indonesia Tbk and “Manipulator” based on Beneish
is able to evaluate or clarified its M-Score. Those are DSRI, GMI, AQI,
performance and financial statement DEPI, SGAI, and LVGI.
fraud potential during 2014 until 2018 in 4. Based on Altman Z-Score PT. Garuda
terms of the company able to make Indonesia Tbk’s performance from
decision to arrange the strategies in the 2014 until 2018 are on distress area.
future. PT. Garuda Indonesia Tbk also
Recommendation
able to anticipate for the financial
1. For the academics
distress by using it own source rather
Development of measuring the
than using out sources since the interest
financial performance and financial
able to make the performance decrease.
statement fraud is important to
The current asset is also have to be
achieve precise target and value.
 2. For the company
PT. Garuda Indonesia Tbk. have to Beneish, M. D. 1999. The Detection of
provide clear explanation for all of Earnings Manipulation. Financial
the stakeholders. If it is needed, a Analysis
restatement of financial statement
Beneish, M.D. 2012. Fraud Detection and
should be done. Expected Return,
3. For the government http://papers.ssrn.com/sol3/papers.cfm?
The government unnecessary abstract_id=1998387
regulation that could effecting
towards company’s performance Bhasin, M., 2016 Accounting Manipulation
should be reevaluate. Practice in Financial Statemets: An
Experience of an Asian Economy.
International Journal of Economics and
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