Use of Z-Score in Detection of Revenue Manipulations

The companies charged by U.S. SEC with earnings manipulations offences appear to have lower Z-Score than the rest of the companies. This study attempts to justify that Z-Score limits set by Altman for determination of bankruptcy state will also work in detection of earnings manipulations. The paper examines the validity of using Z-Score in establishing the sample of non-manipulating companies. It also offers the proof that the signs of earnings manipulations and earnings management coincide within the statements of the same company. The research provides the attempt to give a numeric criterion for establishing presence of earnings manipulation based on Z-Score.