GOING CONCERN EVALUATION AND BANKRUPTCY PREDICTION

Abstract

The progress of globalisation and the beginning of the financial scandals’ season in 2001 as well as the financial crisis started at the end of 2007 increased the demand for quality both in terms of accounting and in auditing standards. As a consequence, FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) have been required to work together in order to settle the differences between the two sets of standards. The convergence between IFRS (International Financial Reporting Standards) and U.S. GAAP (U.S. Generally Accepted Accounting Principles) would be helpful for users analysing different entity’s financial statements no matter what set of standards is used. So while in the past the auditor was charged to establish the substantial doubt about an entity’s ability to continue as a going concern, nowadays the management is responsible for this evaluation. However, the burden of reporting the going concern opinion is still left to auditors. This is often a difficult task, but vast literature has developed on the going concern prediction models and on prediction bankruptcy models although until now none of them can been considered as the most valid one according to the standards. Here a sample of companies has been selected in the year before their bankruptcy. The objective is to evaluate if actually the literature could be useful to predict going concern opinion and the company’s bankruptcy.