RT Journal Article
T1 Does audit report information improve financial distress prediction over Altman's traditional Z‐Score model?
A1 Muñoz Izquierdo, Nora
A1 Laitinen, Erkki K.
A1 Camacho Miñano, Juana María Del Mar
A1 Pascual Ezama, David
AB We analyze empirically the usefulness of combining accounting and auditing data in order to predict corporate financial distress. Concretely, we examine whether audit report information incrementally predicts distress over a traditional accounting model: the Altman's Z-Score model. Although the audit report seems to play a critical part in financial distress prediction because auditors should warn investors about any default risks, this is the first study that uses audit report disclosures for predicting purposes. From a dataset of 1,821 Spanish distressed private firms, we analyze a sample of distressed and non-distressed firms and develop logit prediction models. Our results show that while the only accounting model registers a classification accuracy of 77%, combined models of accounting and auditing data exhibit considerably higher accuracy (about 87%). Specifically, our findings indicate that the number of disclosures included in the audit report, as well as disclosures related to a firm's going concern status, firms’ assets, and firms’ recognition of revenues and expenses contribute the most to the prediction. Our empirical evidence has implications for financial distress practice. For managers, our study highlights the importance of audit report disclosures for anticipating a financial distress situation. For regulators and auditors, our study underscores the importance of recent changes in regulation worldwide intended to increase auditor's transparency through a more informative audit report.
PB Wiley
SN 0954-1314
YR 2020
FD 2020-01-10
LK https://hdl.handle.net/20.500.14352/130541
UL https://hdl.handle.net/20.500.14352/130541
LA eng
NO Muñoz-Izquierdo, N., Laitinen E.K., Camacho-Miñano, M.J., Pascual-Ezama, D.(2020) "Does audit report information improve financial distress prediction over Altman's traditional Z‐Score model?". Journal of International Financial Management and Accounting, 1, 65-97.  DOI: 10.1111/jifm.12110
DS Docta Complutense
RD 26 feb 2026