Abstract:

Auditors are entrusted with significant responsibilities under auditing standards when confronted with uncertainties concerning the ongoing operations of client companies, as evidenced in their financial statements. The present study aims to determine the relationship between financial distress measured through the probability of bankruptcy score based on the financial data, and an audit opinion other than the standard unqualified opinion. This objective serves to reveal the performance of auditors in assuming such responsibility and to verify the effectiveness of a tool that has the potential to facilitate auditors' work. On the other hand, the earthquake disaster guided the sample selection because it caused major problems that threatened the business continuity. Logistic regression analysis was adopted as the analytical method due to the categorical nature of the dependent variable. The findings indicate that financial distress is associated with being audited by major audit firms tested as the control variable, and with the company's profitability and accounts receivable turnover. The bankruptcy model used for measuring financial distress has the potential to be a unique tool that auditors and regulatory bodies can utilize. Key Words: Financial Failure, Audit Opinion, Shumway Model, Business Continuity JEL Classification: M40, D22, M42

Keywords: