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The Accuracy and Incremental Information Content of Audit Reports in Predicting Bankruptcy

The Accuracy and Incremental Information Content of Audit Reports in Predicting Bankruptcy A series of corporate failures in which auditors failed to warn about impending bankruptcy led to widespread criticism of the UK auditing profession during the last recession. For a sample of 976 quoted companies (1987–94), this paper shows that there are two reasons why audit reports were not accurate or informative indicators of bankruptcy. First, audit reports poorly reflected publicly available information about the probability of bankruptcy. Secondly, strong persistence in audit reporting reduced the accuracy of audit reports http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Business Finance & Accounting Wiley

The Accuracy and Incremental Information Content of Audit Reports in Predicting Bankruptcy

Journal of Business Finance & Accounting , Volume 26 (5‐6) – Jun 1, 1999

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References (27)

Publisher
Wiley
Copyright
Copyright © 1999 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0306-686X
eISSN
1468-5957
DOI
10.1111/1468-5957.00274
Publisher site
See Article on Publisher Site

Abstract

A series of corporate failures in which auditors failed to warn about impending bankruptcy led to widespread criticism of the UK auditing profession during the last recession. For a sample of 976 quoted companies (1987–94), this paper shows that there are two reasons why audit reports were not accurate or informative indicators of bankruptcy. First, audit reports poorly reflected publicly available information about the probability of bankruptcy. Secondly, strong persistence in audit reporting reduced the accuracy of audit reports

Journal

Journal of Business Finance & AccountingWiley

Published: Jun 1, 1999

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