From the original Beneish paper

DEPI is the ratio of the rate of depreciation in year t-1 vs the corresponding rate in year t.The depreciation rate in a given year equals is equal to depreciation/(depreciation+net PPE). A DEPI greater than 1 it indicates that the rate at which assets are depreciated has slowed down--raising the possibility that the firm has revised upwards the estimates of assets useful lives or adopted a new method that is income increasing. I thus expect a positive relation between DEPI and the probability of manipulation.

Beneish Formula

(Depreciation{t-1} / (Depreciation{t-1} + Net Plant{t-1})) /
(Depreciation{t} / (Depreciation{t} + Net Plant{t}))

Our Formula

ISNA((DepAmortPTM / (DepAmortPTM + NetPlantPYQ)) /
(DepAmortTTM / (DepAmortTTM + NetPlantQ)),1)

NOTE1: Our Beneish score uses this version of DEPI that uses Dep&Amort instead of just Depreciation due to the limited Depreciation data from Compustat (only annual values starting in 2001)

NOTE2: If DepAmort during preliminary reporting is N/A , the whole formula excludes the latest period

Related Factors:

BeneishMScore MScoreAQI MScoreDEPAMI MScoreDEPI MScoreDSRI MScoreGMI MScoreLVGI MScoreSGAI MScoreSGAI MScoreTATA