Next Article in Journal
Cross-Border Lending, Government Capital Injection, and Bank Performance
Next Article in Special Issue
On Unbalanced Sampling in Bankruptcy Prediction
Previous Article in Journal
The Impact of College Athletic Success on Donations and Applicant Quality
Previous Article in Special Issue
Analysis of Bankruptcy Threat for Risk Management Purposes: A Model Approach
Open AccessArticle

Is the External Audit Report Useful for Bankruptcy Prediction? Evidence Using Artificial Intelligence

CUNEF—Colegio Universitario de Estudios Financieros, Leonardo Prieto Castro, 2, Ciudad Universitaria, 28040 Madrid, Spain
Facultad de Ciencias Económicas y Empresariales, Complutense University of Madrid, Campus de Somosaguas, Pozuelo de Alarcón, 28223 Madrid, Spain
Author to whom correspondence should be addressed.
Int. J. Financial Stud. 2019, 7(2), 20;
Received: 6 November 2018 / Revised: 19 March 2019 / Accepted: 23 March 2019 / Published: 8 April 2019
(This article belongs to the Special Issue Bankruptcy Prediction)
Despite the number of studies on bankruptcy prediction using financial ratios, very little is known about how external audit information can contribute to anticipating financial distress. A handful of papers have shown that a combination of ratios and audit data is significant for predictive purposes, but only one recent paper provided a predictive accuracy of 80% solely by using the disclosures contained in audit reports. This study was complemented by simplifying the analysis of audit reports for prediction purposes and the same predictive accuracy was achieved. By applying three artificial intelligence techniques (PART algorithm, random forest, and support vector machine), the predictive ability of more easily extracted information from the report was examined and a practical implication suggested for each user. Simply by (1) finding the audit opinion, (2) identifying if a matter section exists, and (3) the number of comments disclosed, any user may predict a bankruptcy situation with the same accuracy as if they had scrutinized the whole report. In addition, an extended literature review is included, on previous studies on the interaction between bankruptcy prediction and the external audit information. View Full-Text
Keywords: bankruptcy prediction; audit report; artificial intelligence; PART algorithm bankruptcy prediction; audit report; artificial intelligence; PART algorithm
Show Figures

Figure 1

MDPI and ACS Style

Muñoz-Izquierdo, N.; Camacho-Miñano, M.-D.-M.; Segovia-Vargas, M.-J.; Pascual-Ezama, D. Is the External Audit Report Useful for Bankruptcy Prediction? Evidence Using Artificial Intelligence. Int. J. Financial Stud. 2019, 7, 20.

Show more citation formats Show less citations formats
Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Article Access Map by Country/Region

Back to TopTop