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A probability model for earnings restatement

by Dabo, Abdoulaye

Abstract

Given their prevalence in recent years, earnings management and financial restatements have been at the center of much of the discussion surrounding corporate malfeasance. This study builds a probability model for predicting the likelihood of earnings restatements by analyzing the trends in and the deviations from the industry averages of the return on assets, accounts receivable turnover, net profit margin, and cash flow to net income measures. Data are obtained for a sample of 104 firms (restating as well as non-restating) for the 2000 to 2001 period. The results suggest that the deviation from the industry average of the accounts receivable turnover and the variability in the cash flow to net income are good barometers for detecting fraudulent accounting. Potential restating firms have higher accounts receivable turnover rates than their industry counterparts and downward trends in their cash flow to net income, signaling the likelihood of a restatement, at least in the current study.

Note

Includes bibliographical references.

Administrative Notes

None

Copyright
Copyright restrictions apply.
Publisher
Colorado College
PID
coccc:5901
Digital Origin
born digital
Extent
96 pages : illustrations
Thesis
Senior Thesis -- Colorado College
Thesis Advisor
Laux, Judy
Department/Program
Department of Economics and Business
Degree Name
bachelor
Degree Type
Bachelor of Arts
Degree Grantor
Colorado College
Date Issued
2012