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((DepPTM(estimated) / (DepPTM(estimated) + NetPlantPYQ)) /
(DepTTM(estimated) / (DepTTM(estimated) + NetPlantQ)),1)

NOTE1: This version of DEPI estimates the Depreciation component of Dep&Amort by looking at the annual Depreciation values that Compustat makes available and calculating a ratio to extract Depreciation from Dep&Amort interim data.

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