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Αn Integrated Financial Ratio Analysis as a Navigation Compass through the Fraudulent Reporting Conundrum: Α Case Study

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  • Eleftherios Kourtis
  • Georgios Kourtis
  • Panayiotis Curtis

Abstract

Purpose: An integrated analysis of the consolidated financial statements of the Folli Follie group was performed to explore whether it is an effective apparatus ro reveal misleading reporting. Design/methodology/approach: Horizontal and vertical analysis, cash flows from operations, current accruals quality, profitability ratios, as well as the cash conversion cycle (CCC) and Piotroski models were applied. All of them worked harmoniously in a supplementary fashion to corroborate findings of distorted data reporting. Findings: Financial ratios had been derailed and remained unexplained by the prtinciples of financial management. It is attributed to fraudulent earnings management practices, that altered artificially specific financial data disproportionally. Practical implications: Αn integrated financial ratio analysis contributes to preventing or ameliorating the non-efficient allocation of resources associated with deplorable creative accounting practices, that creates welfare loses to the detriment of shareholders, stakeholders and ultimately to society as a whole. Originality/value: The analysis outcomes can be exploited as a red flags / whistle-blowing mechanism in cases of financial statement manipulation, since under these circumstances crucial financial ratios seem to derail. A holistic financial statement analysis is proven to represent a vital roadmap and an effective apparatus in forensic accounting, to secure that unfounded financial reporting based on spurious data will not easily get away unnoticed.

Suggested Citation

  • Eleftherios Kourtis & Georgios Kourtis & Panayiotis Curtis, 2019. "Αn Integrated Financial Ratio Analysis as a Navigation Compass through the Fraudulent Reporting Conundrum: Α Case Study," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 9(1-2), pages 3-20.
    • Handle: RePEc:ers:ijfirm:v:9:y:2019:i:1-2:p:3-20
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    References listed on IDEAS

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    1. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
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    Cited by:

    1. Ndatenyirigira Joseph, 2023. "Financial Statements Analysis and Financial Performance of Commercial Banks in Rwanda," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(3), pages 807-824, March.

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    More about this item

    Keywords

    Fraudulent Reporting; Earnings Management; Financial Statements Analysis; Ratios; CFFO; CCC; Du Pont Analysis.;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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