Detection of earnings management in insurance companies in Slovakia

Abstract

Research background: Manipulation and the use of creative accounting or earnings management have become an increasingly popular topic in the history of researchers. Since 2002, this issue has attracted the attention of scientists and economists around the world. On the Slovak market, more than 30 insurance companies are actually operating, and some analyses have revealed that some of these insurance companies are engaging in activities that do not comply with the law. Purpose of the article: The article aims to use selected models for the detection of fraudulent financial reporting to determine whether there are unfair activities in insurance companies in Slovakia. At the same time, we evaluate the reliability of selected models and recommend the best models for this sector. Methods: Based on the set criteria, the Beneish model with five parameters and the Beneish model with eight parameters are applied to selected 20 companies in the Financial and Insurance activities sector to determine which companies have manipulated the financial statements. The analysis is performed using real data on Slovak companies from the Amadeus database. Findings & Value added: For the Financial and Insurance activities industry, we recommend using the Beneish model with eight parameters. Comparing the two models, we can conclude that this model is more accurate and thorough. The reason is also that this model works with more data from the financial statements.

Keywords

• beneish model;
• earnings manipulation,
• fraudulent financial reporting