Detecting Corporate Financial Fraud Using Modified Altman Z-Score and Beneish M-Score. The Case of Enron Corp

Abstract

Enron Corp. was a U.S. corporation involved in three main business units made up of Wholesale Services, Energy Services and Global Services. Enron Corp. used fraudulent financial reporting to mislead and confuse investors, shareholders, creditors, employees of Enron Corp, government and regulatory agencies of the financial market. The purpose of the study was to analysis Enron Company’s annual 10K reports filed with U.S. Security Exchange Commission (SEC) from 1997 - 2001 using Modified Altman Z-Score and Beneish M-Score detective models to find out how early the company’s financial fraud could have been identified. Data for the study was retrieved from the U.S. SEC Edgar Database. Using the Modified Altman Z-Score values, the study found that Enron Corp. financial fraud could have been detected in 1997. The Beneish M-Score values also revealed that, Enron Corp. financial fraud could have been identified in 1998.

Keywords: Financial fraud, earnings manipulation, bankruptcy, Modified Altman Z-Score, Beneish M-Score.