Abstract

PINEIRO SANCHEZ, Carlos; DE LLANO MONELOS, Pablo  and  RODRIGUEZ LOPEZ, Manuel. A parsimonious model to forecast financial distress, based on audit evidence. Contad. Adm [online]. 2013, vol.58, n.4, pp.151-173. ISSN 0186-1042.

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.

Keywords : financial distress; failure forecast; audit quality; logit regression.

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