The primary goal of this study is to propose an algorithm using mathematical programming to detect earnings management practices 1 . In order to evaluate the ability of this proposed algorithm, the traditional statistical models are used as a benchmark vis-a-vis with their timeseries counterparts. As emerging techniques in the area of mathematical programming yields better results, application of suitable models expected to result in highly performed forecasts. The motivation behind this paper is to develop an algorithm which will give a successful achievement on detecting companies which appeal to financial manipulation. The methodology is based on cutting plane formulation using mathematical programming. A sample of 126 Turkish manufacturing firms described over ten financial ratios and indexes are used for detecting factors associated with false financial statements. The results indicate that the proposed three phase cutting plane algorithm outperforms the traditional statistical techniques which are widely used for false financial statement detections. Furthermore, the results indicate that the investigation of financial information can be helpful towards the identification of false financial statements and highlight the importance of financial ratios/indexes such as Days' Sales in Receivables Index (DSRI), Gross Margin Index (GMI), Working Capital Accruals to Total Assets (TATA), Days to Inventory Index (DINV).

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