DETECTING EARNINGS MANIPULATION SIGNALS IN INDONESIAN MANUFACTURING FIRMS USING THE BENEISH MSCORE

Abstract

This study critically examines the assumption that an unqualified audit opinion guarantees that financial statements are free from earnings-manipulation signals that may act as a precursor to fraud, and it detects such signals in the audited financial statements of manufacturing companies listed on the Indonesia Stock Exchange (IDX) using the Beneish M-Score model. A descriptive qualitative approach was employed, drawing on secondary data in the form of the audited annual financial statements of five manufacturing companies for the 2021-2022 period, selected through purposive sampling: PT Gudang Garam Tbk, PT Indofood Sukses Makmur Tbk, PT Unilever Indonesia Tbk, PT Astra International Tbk, and PT Kalbe Farma Tbk. The analysis involved computing the eight Beneish M-Score ratios (DSRI, GMI, AQI, SGI, DEPI, SGAI, LVGI, and TATA) and applying the classification threshold of -2.22. The results show that four of the five sampled companies (80%), despite holding audited financial statements, still exhibited earnings-manipulation signals, whereas only one company was classified as a non-manipulator; the AQI, DSRI, SGI, and TATA ratios were identified as the variables contributing most to higher M-Score values. These findings confirm that the “manipulator” classification reflects a statistical indication of earnings manipulation which may represent aggressive but lawful earnings management or an early indication of fraud and that an “audited” status does not automatically guarantee the absence of such signals, since an audit provides only reasonable rather than absolute assurance. The study recommends employing the Beneish M-Score as a complementary analytical tool alongside conventional audit procedures, strengthening auditors’ substantive analytical procedures, and exercising greater caution among investors and regulators in treating audit opinions as the sole guarantee of financial-statement quality, so as to narrow the audit expectation gap and strengthen the early detection of the escalation of earnings management into fraud among Indonesian manufacturing companies.