Module 09 · Exercises

Use tools/fi/forensics.py for the scores; Kaveri figures from the running-example page.

Warm-up

E09.01 Describe the five positions on the accounting spectrum and the analyst's response to each.

E09.02 State the fraud triangle and give an observable proxy for each corner.

E09.03 List Schilit's three families and two techniques in each.

E09.04 Who detects fraud most often, and what does that imply about audit opinions?

E09.05 Define: channel stuffing, bill-and-hold, round-tripping, gross vs net, POC abuse, cookie jar, big bath, supplier finance, window dressing.

E09.06 Write the Beneish M-score formula and its threshold; the Altman Z (original) formula and zones; the nine Piotroski signals.

E09.07 What is the "Satyam test" and what result would have exposed it?

Core

E09.08 Receivables tests. From Kaveri FY21–26 (receivables 107.3, 118.4, 146.1, 192.9, 269.7, 346.7; revenue 612, 758, 874, 1,006, 1,172, 1,318), compute DSO each year, receivables growth ÷ revenue growth each year, and DSRI for FY24–26.

E09.09 Adjudication. Using the four-hypothesis table of 09.2 §2.1, write one line of evidence for and against each hypothesis for Kaveri, and the verdict with a confidence level.

E09.10 Provisioning. Kaveri's > 6-month overdues are ₹62.4 Cr with a ₹4.0 Cr allowance. Compute the after-tax PAT and EPS effects of coverage at 20%, 30% and 50%.

E09.11 Capitalisation test (fictional). A software company's intangibles under development rose ₹40 → ₹95 → ₹180 Cr over three years; R&D expense fell from 12% to 6% of ₹800 Cr revenue; EBITDA margin rose from 14% to 22%. Restate year-3 EBITDA as if the incremental capitalisation were expensed, and comment.

E09.12 Depreciation. A company extends the useful life of its plant from 12 to 20 years; gross depreciable block ₹2,400 Cr, straight-line, no residual. Compute the annual depreciation before and after and the PAT effect at 25% tax.

E09.13 Provision roll-forward. Opening ₹80 Cr; charge ₹12 Cr; utilisation ₹15 Cr; reversal ₹30 Cr; closing? Which line boosted profit and what would you ask?

E09.14 Interest on cash. Company X: cash and bank ₹1,800 Cr (₹1,500 Cr prior year); interest income ₹28 Cr; borrowings ₹1,200 Cr at ~9%. Compute the implied yield and the interest paid; interpret.

E09.15 Supplier finance. A retailer's payable days jump from 40 to 85 in a year in which CFO doubled; the notes mention a "vendor financing programme" of ₹900 Cr. Recompute net debt and net debt/EBITDA (EBITDA ₹1,200 Cr; reported net debt ₹600 Cr).

E09.16 Standalone vs consolidated. Standalone cash ₹15 Cr; consolidated cash ₹640 Cr; standalone loans to subsidiaries ₹520 Cr; consolidated subsidiaries' PAT −₹90 Cr. Explain what is happening and what you would value.

E09.17 Beneish. Run forensic_summary(load_kaveri(), "FY26") and report each index and the M-score. Which two indices contribute most to the change from FY24's −2.32? Then recompute M by hand from the indices and the coefficients.

E09.18 Altman. Compute Kaveri's Z (original) at a market cap of ₹2,340 Cr (working capital 316.5; retained earnings 676.1; EBIT incl. other income 138.0; sales 1,318; total assets 1,143.6; total liabilities 437.5); classify; then Z″ using book equity ₹706.1 Cr.

E09.19 Piotroski. Score Kaveri FY26 signal by signal (the tool gives the values) and explain which three signals it lost since FY24 and why.

E09.20 Governance signals. Rank these events by severity and justify: (a) mandatory auditor rotation; (b) a 6% promoter pledge for a private venture; (c) the CFO resigning three weeks before results; (d) RPT purchases rising from 6.5% to 10.4% of materials over five years; (e) an independent director resigning citing "personal reasons" two days after an audit-committee meeting.

E09.21 Operator pattern. A stock trades 60 lakh shares a day with 3 lakh delivered; the top "public" holders include three private companies at the company's registered address; the company announced ₹2,000 Cr of "orders" in a year with ₹120 Cr of revenue; a preferential issue of warrants to "investors" was priced at the SEBI floor. Which signals are present and what do you do?

E09.22 Checklist. Score Kaveri on all 40 items of 09.7 yourself (before reading the lesson's scores), compute the section totals and RAG, and write the four-part verdict.

E09.23 Escalation. For each of the following, state whether Kaveri's RAG would change and why: (a) a KAM becomes a qualification on receivables; (b) the pledge rises to 12%; (c) a state agency disputes ₹15 Cr; (d) the company discloses contract assets of ₹40 Cr for the first time.

Stretch

E09.24 Design a fabricated-revenue scheme for a fictional manufacturer and then list, statement by statement, the marks it would leave and the test that would catch each.

E09.25 Explain why Beneish and Altman would both have passed Satyam in 2008, and which two disclosures would have caught it.

E09.26 Build a "forensic exclusion screen" for a Screener export (pledge, CFO/PAT, auditor change, ASM, RPT) and estimate what share of a small-cap universe it would remove.

Real-world task

E09.27 Run forensic_summary on a real listed manufacturer using fetch_statements (map the rows as the docstring describes). Report Beneish, Altman, Piotroski, accruals and cash yield with the mapping assumptions stated.

E09.28 For the same company, complete the 40-point checklist from its last two annual reports and exchange filings, with page references, and write the verdict.

E09.29 Read one SEBI final order on a small-cap manipulation case (2023–26). Summarise the mechanism in 150 words and list the signals visible in public data before the order.