Page 26 - Azerbaijan State University of Economics

Nina Poyda-Nosyk, Serhii Lehenchuk, Victoriia Makarovych, Iryna Polishchuk, Tetiana Zavalii: Analytical
Procedures in Audit As A Tool For Predicting The Risks Of Financial Statement Fraud In Marketing Companies

DSRI and GMI exhibit substantial variability across the sample. For example, GMI
ranges from -5.54 to 233.39, reflecting significant differences in gross margin
dynamics and cost management. Similarly, LVGI ranges from 0.14 to 6.40,
highlighting different levels of debt burden among firms. Certain companies display
extreme values across multiple indicators, which may suggest financial instability or
non-standard operating conditions under martial law. TATA deviates significantly
from the norm in many companies, which may indicate an aggressive accounting
policy. Companies with indicators’ value close to one tend to demonstrate greater
financial stability and more reliable reporting.
Analysis of the range of DSRI values revealed that DSRI is greater than 1 may indicate
a potential overstatement of revenue from product sales, whereas a value below 0.5
may suggest the artificial understatement of revenue, likely due to its allocation across
different reporting periods. Similarly, the variation in GMI values indicates that a GMI
above 3 reflects a sharp decline in profitability, which may be a sign of business
problems or financial statement manipulation. Conversely, a GMI below 0 may point
to unprofitability or non-standard accounting practices used at companies.
In terms of TATA, values exceeding 1 suggest a high proportion of non-cash components
in reported profit, confirming the possibility of manipulation. In contrast, TATA values
below 0 imply the use of conservative accounting practices. The analysis of the range of
LVGI values shows that when LVGI exceeds 2, it suggest a high level of financial
leverage, which increases a company’s financial risks. Value below 0.5 may indicates
excessive capitalization or a strategy of avoiding debt financing.
The analysis made it possible to identify several companies (Lati Production LLC,
Flatfy UA LLC, Partner Media LLC, OMG Agency LLC) that have the highest risks of
financial reporting fraud. These companies exhibit significantly elevated or abnormally
high GMI values, which indicate potential errors in financial reporting or the artificial
understatement of profits. Additionally, their high TATA values confirm possible
financial manipulations in these companies. The overall results of the M-Score
calculations, based on both the 5-factor Roxas model and the 8-factor Beneish model,
are given in Appendix B. According to the Beneish model, an M-Score value exceeding
1.5 signals a high risk of manipulation. For instance, Lati Production LLC recorded an
extreme M-Score of 2328.21, while Partner Media LLC reported a value of 281.93.
Results from the Roxas model (5-factor) similarly confirm these risk levels. The most
concerning cases are Lati Production LLC, G. O. Media LLC, and Afisha Print LLC,
all of which have abnormally high M-Scores. These findings suggest a need for further
in-depth examination of their financial statements by the audit professionals.

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