(p. A2) Manipulation of earnings from Corporate America is on the rise, an ominous omen for the U.S. economy.
That is the conclusion of new research on accounting fraud, using a technique that flagged Enron as an earnings manipulator several years before the energy company’s spectacular 2001 implosion.
Unless you study accounting, you have likely never come across the M-Score, which is the number underlying both the Enron episode and the economywide concern now. The “M” is for manipulation, and uses a company’s financial statements to determine whether it is engaging in manipulation.
. . .
“We think this is a measure of misinformation in the economy,” said Dr. Beneish. The new aggregate measure was published in a December [2022] paper, and the latest data—compiled in March [2023] and shared with The Wall Street Journal—shows that the collective probability of fraud across major companies is the highest in over 40 years.
For the full commentary, see:
(Note: ellipsis, and bracketed years, added.)
(Note: the online version of the commentary has the date March 24, 2023, and has the title “THE NUMBERS; Accounting-Fraud Indicator Signals Coming Economic Trouble.”)
The December 2022 paper mentioned above is:
Beneish, Messod D., David B. Farber, Matthew Glendening, and Kenneth W. Shaw. “Aggregate Financial Misreporting and the Predictability of U.S. Recessions and GDP Growth.” The Accounting Review (Dec. 2022), DOI:10.2308/tar-2021-0160.