Newsinterpretation

J Score to identify the creative accounting

Created by CA Mayur Joshi, the J-Score is a mathematical model that uses various financial ratios to identify whether a company has indulged into creative accounting. The variables are constructed from the company’s financial statements and create a score to describe the degree to which the earnings have been manipulated. In many ways, it is similar to the Altman Z-Score, but it helps in detecting creative accounting practices rather than bankruptcy.

Altman’s idea of developing a formula for predicting bankruptcy started at the time of the Great Depression when businesses experienced a sharp rise in incidences of default.

Similarly, the idea of J-Score was borne after the accounting scandal of Satyam Computers broke in the year 2009. Just before this failure, Indiaforensic, in its research paper predicted that there are 1200 companies that could be indulging in creative accounting practices.

However, it gained importance only after the failure of the Non-Banking Finance Company sector in India. The NBFC sector highlighted the limitations of the credit rating. The CEOs of two Credit rating agencies were also held responsible for the failure of credit rating agencies to identify the anomalies in the financial system.

How does the J-Score Work ?

The J-score model predicts the probability that an Indian Listed company could be indulging in creative accounting practices. The model proved to be an accurate method for predicting creative accounting on several occasions. It works the best on Indian companies. Joshi used all the companies listed on NSE. In his analysis of creative accounting, Joshi found that he could correctly identify 78% of creative accountants. The score predicted Cox and Kings, PC Jewelers as the companies indulging in creative accounting practices. It identifies Infosys, TCS, and Reliance as the companies which are nowhere close to manipulation of the books of accounts.

Altman Z-score on the other hand failed in assessing the Indian companies. Though it has identified the bankruptcy of Ruchi Soya correctly, the model fails when it scores Bajaj Finserve, Bharti Airtel, Bajaj Finance, HDFC, and HDFC Bank as potential candidates for bankruptcy. It is hard to believe that these companies would file for bankruptcy in next few years.

TOP 10 TRENDING ON NEWSINTERPRETATION

“Pay more and enjoy nothing”—Newsom torches Trump’s tariff push as costs for food, cars, and flights soar

California Governor Gavin Newsom has strongly criticized President Donald...

Eric Trump explodes on Newsmax — claims Biden tried to break up Donald and Melania’s marriage

Eric Trump has sparked fresh controversy after making a...

Republicans brace as AOC’s rising momentum threatens to upend 2026 and 2028 elections

Republicans warn their party not to underestimate Representative Alexandria...

WestJet Reveals Passenger Data Breach Raising Security Concerns

Canadian airline WestJet has confirmed that some passenger information...

Japanese beer giant Asahi confirms cyberattack halts shipping and ordering in Japan temporarily

Japanese beer giant Asahi has confirmed a cyber attack...

Leaked emails expose Epstein’s secret hand in Israel–Mongolia security pact with Barak

A new set of leaked emails shows Jeffrey Epstein...

Award stage turns battlefield as Harris brands Trump an unchecked, incompetent and unhinged President

Kamala Harris, the former vice president and 2024 Democratic...

Newsom office doubles down on fascist label for Miller citing his political actions and views

Newsom’s Office Takes a Bold Stance California Governor Gavin Newsom’s...

The privacy-first app that just blew past 350,000 new users a day

Explosive Growth Surprises Users Arattai, the messaging app developed by...

Federal firepower hits AOC’s Queens district as FBI targets Roosevelt Avenue crime empire

The FBI has moved into action in Queens, New...

Republicans brace as AOC’s rising momentum threatens to upend 2026 and 2028 elections

Republicans warn their party not to underestimate Representative Alexandria...

WestJet Reveals Passenger Data Breach Raising Security Concerns

Canadian airline WestJet has confirmed that some passenger information...

Newsom office doubles down on fascist label for Miller citing his political actions and views

Newsom’s Office Takes a Bold Stance California Governor Gavin Newsom’s...
error: Content is protected !!
Exit mobile version