A parsimonious model to forecast financial distress, based on audit evidence
This paper provides evidence that audit reports convey relevant evidence for inferring the existence of underlying, unrevealed, financial imbalances. Unlike previous works, which studied US listed-firms bankruptcy, our research deals with Spanish non-financial SMEs under financial stress. Our results indicate that the audit of distressed SMEs has several distinctive features: higher auditor rotation, more qualified reports, and non-compliance with deadlines to approve and ile the annual inancial statements. We use this evidence to build and test a parsimonious and reliable forecast model. Several implications for auditors' independence, information quality, and failure forecast are discussed.
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| Main Authors: | , , |
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| Format: | Digital revista |
| Language: | English |
| Published: |
Universidad Nacional Autónoma de México, Facultad de Contaduría y Administración
2013
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| Online Access: | http://www.scielo.org.mx/scielo.php?script=sci_arttext&pid=S0186-10422013000400007 |
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| Summary: | This paper provides evidence that audit reports convey relevant evidence for inferring the existence of underlying, unrevealed, financial imbalances. Unlike previous works, which studied US listed-firms bankruptcy, our research deals with Spanish non-financial SMEs under financial stress. Our results indicate that the audit of distressed SMEs has several distinctive features: higher auditor rotation, more qualified reports, and non-compliance with deadlines to approve and ile the annual inancial statements. We use this evidence to build and test a parsimonious and reliable forecast model. Several implications for auditors' independence, information quality, and failure forecast are discussed. |
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