Arbotech Case Essay

839 WordsMar 20, 20154 Pages
A. Using information in the financial statements as originally reported in Ex 6.27 – 6.29, compute the value of beneish’s manipulation index for fiscal year 5 and year 6. M Score = -4.840 + 0.920 x DSRI + 0.528 x GMI + 0.404 x AQ + 0.892 x SGI + 0.115 x DEPI - 0.172 x SGAI - 0.327 x LVGI + 4.697 x TATA -4.840+0.920[(3932/12445)/(1662/8213)]+0.528{[(8213 –4523)/8213]/[(12445–6,833)/12445]}+0.404({1–[(15443+1323)/18199]}/{1–[(6320+669)/7590]})+0.892(12445/8213)+0.115{[193/(193+669)]/[337/(337+1,323)]}+-0.172[(3366/$12445)/(1889/8,213)]+-0.327{[(5592+162)/18199]/[(1132+0)/7590]}+4.67{[874–(-5665)]/18199} Year 5 probability of manipulation is 37.3%…show more content…
Manipulation of physical counts of inventory: This overstates income tax expense and net income, inventories, retained earnings and income tax payable. This understates cost of goods sold. It was a ploy to overstate inventory to reduce cost of goods sold and inflate net income. 4. Failure to write down inventories adequately for product obsolescence: This overstates income tax expense and net income, inventories, retained earnings and income tax payable. This understates cost of goods sold. 5. Inclusion of certain costs in property, plant and equipment that the firm should have expense in the period incurred: This overstates fixed assets, income tax payable, retained earnings, operating expenses. This understates income tax expense. 6. Inclusion in advances to other technology companies of amounts that represented prepaid license fees: This overstates income net income, assets and retained earnings. This understates expenses on the income sheet. 7. Failure to provide adequately for uncollectible amounts related to advances to other technology companies: This overstates assets, retained earnings, income tax expense and net income. 8. Failure to write down or write off investments in other technology companies: This overstates assets, retained earnings, income tax expense and net income. D. Using information in the restated financial statements in ex 6.31-6.33, the financial ratios in ex 6.34 and the information provided in this case, as a commercial banker,

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