Olympia Gkouma, John Filos and Evangelos Chytis

Correspondence: Evangelos Chytis, ehytis@teiep.gr

Technological Educational Institute of Epirus, Department of Accounting and Finance, Greece

pdf (1266.78 Kb) | doi:

Abstract

Corporate failure may be defined as the situation where a business unit becomes insolvent and progressively moves towards bankruptcy or into liquidation. The recent financial crisis has deteriorated dramatically the financial conditions in which the business units operate and has a significant impact on the companies that experience corporate failure. The going concern assumption constitutes a fundamental accounting principle for the preparation of financial statements and is even more important in times when global economy is facing such a financial crisis. The independent auditor’s report attribute credibility to the financial statements prepared by management. The purpose of this paper is to develop a reliable model that classifies the risk of corporate failure on six levels using financial analysis ratios. The model is developed based on financial data of Athens Stock Exchange (ASE) listed firms for the year 2011.

Keywords:

  IFRS, Going Concern, Insolvent, Auditor’s Report

References

Altman E.I. (1968), Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy, The Journal of Finance, Vol. 23, Iss.4 p. 589-609

Beaver W. (1966), Financial Ratios as Predictors of Failure, Journal of Accounting Research, Vol.4, Empirical Research in Accounting: Selected Studies 1966, pp. 71-111

Boone J., I. Khurana, K. Raman (2010), Do the Big 4 and the second-tier firms provide audits of similar quality?, Journal of Accounting and Public Policy, Voll.29,Iss.4,p.330

Carey P.J., M.A. Geiger, B.T. O’Connell (2008), Costs associated with going-concern modified audit opinions: An analysis of the Australian audit market, Abacus, Vol.48, pp.61-81

Carey P.J., S. Kortum, R.A.Moroney (2011), Auditors’ modified going concern opinions post 2001: Increased conservatism or improved accuracy, Accounting and Finance, under publish

Carson E., R. Simnett, P.C. Tronnes (2011), International Consistency in audit reporting behavior: Evidence from going concern modifications, Report to International Auditing and Assurance Standards Board

Citron D., R. Taffler (1992), The audit report under going concern uncertainties: An empirical analysis; Accounting and Business Research, Vol.22, Iss.88, pp.337-347

DeFond M.L., J.R. Francis, X.Hu (2011), The geography of SEC enforcement and auditor reporting for financially distressed clients, under publish

DeFond M.L., C. Lennox (2011), The effect of SOX on small auditor exits and audit quality, Journal of Accounting and Economics, Vol.52,Iss.1,pp.21-40

Daruosh Foroghi and Amir Mirshams Shahshahani (2012), Audit Firm Size and Going-Concern Reporting Accuracy, Interdisciplinary Journal of Contemporary Research in Business, Vol.3, No 9

Feldman D., W. Read (2010), Auditor Conservatism after Enron, Auditing: A Journal of Practice and Theory, Vol. 29, Iss.1, pp.267-278

Francis J.R., M. Yu (2009), Big 4 office size and audit quality, The Accounting Review, Vol.84, Iss.5,pp.1521-1552.

Gaeremynck A., M. Willekens (2003); The endogenous relationship between audit-report type and business termination: evidence on private firms in a non-litigious environment; Accounting and Business Research, Vol.33, Iss.1, pp.65-79

Garsombke H.P. and S. Choi (1992), The association between auditor’s uncertainty opinions and business failures, Advances in Accounting, Vol.10, pp.45-60

Geiger M.A., K. Raghundanan, D.V. Rama (1998), Going Concern audit report recipients before and after SAS No. 59, The National Public Accountant, Vol.43, Iss.8, pp.24-25

Geiger M.A. and D.V. Rama (2006), Audit firm size and going concern reporting accuracy, Accounting Horizons, Vol.20, pp.1-16

Julian Franks and Gyongyi Loranth (2004), A study of inefficient going concerns in bankruptcy, under publish (www.ssrn.com)

Kida T. (1980); An investigation into auditors’ continuity and related qualification judgments, Journal of Accounting Research, Vol.18, pp.506-523

Lennox C. (1999a), The accuracy and incremental information content of audit reports in predicting bankruptcy, Journal of Business, Finance and Accounting, Vol.26, Iss.5&6, pp.757-778

Marshall A. Geiger and Dasaratha V. Rama (2006), Audit Firm Size and Going Concern Reporting Accuracy. Accounting Horizons, Vol. 20, No. 1, pp. 1-17.

Mutchler J.F., D.D. Williams (1990),The relationship between audit technology , client risk profiles and the going concern opinion decision, Auditing: A Journal of Practice and Theory, Vol. 9, pp. 39-54

Mutchler J.F. (1984), Auditors’ perceptions of the going concern opinion decision, Auditing: A journal of Practice and Theory, (Spring), pp.17-29

Mutchler J.F, W. Hopwood, J. McKeown (1997), The influence of contrary information and mitigating factors in audit opinion decision, Journal of Accounting Research, Vol.35, pp.295-310

Nogler G.E. (1995), The resolution of auditor going voncern opinions, Auditing: A journal of Practice and Theory, Vol. 14, pp.54-7

Numan W., M. Willekens (2011). Competitive pressure, audit quality and specialization, under publish

Pryor and Terza (2002), Are going concern audit opinions a self-fulfilling prophecy?, Advances in Quantitative Analysis of Finance and Accounting, Vol.10, pp. 89-116

Reichelt K., D.Wang (2010), National and office specific measures of auditor industry expertise and effects on audit quality, Journal of Accounting Research, Vol.48,Iss.3,pp.647-686

Weil J. (2001), Going Concerns: Did accountants fail to flag problems at dot-com casualties?, The Wall Street Journal

Xu Y., E. Carson, N. Fargher (2011b); Audit Reports in Australia during the global financial crisis, Accounting and Finance, under publish