Can a quantitative approach be mitigated? Proposals for the application of the "early warnings" required by the new Italian Insolvency Code

2020 ◽  
pp. 33-61
Author(s):  
Fabrizio Bava ◽  
Massimo Cane ◽  
Melchior Gromis di Trana
Keyword(s):  
Discriminant Analysis ◽  
Financial Crises ◽  
Previous Investigation ◽  
Financial Statements ◽  
Early Warning Mechanism ◽  
Proposed Model ◽  
Reporting Process ◽  
European Regulations ◽  
Quantitative Indicators ◽  
False Positives And Negatives

In compliance with European regulations, the new Italian "Insolvency Code" introduced new tools to prevent future financial crises in businesses ("early warn-ings"). Their aim is to highlight future insolvency issues, to enable timely action in order to avert the potential crisis for as long as possible.V This mechanism will come into force on 15 August 2020. Based on a previous investigation that identified the most sensitive financial ratios for evaluating a go-ing concern, this study proposes and tests a possible approach which combines generic quantitative indicators with a case-by-case solution. A discriminant analysis was made on a pairwise sample of Italian non-listed small and medium-sized companies (SMEs). The proposed model overcomes the problem that arose from a combined interpretation of the indicators, and also it acts as a tool that can deter-mine the level of risk within each situation. This approach aims to limit the rigidity produced by common quantitative thresholds, thereby reducing false positives and negatives, ensuring an automatic reporting process that can preserve the efficiency of the early warning mechanism. Furthermore, our proposal is better suited to SMEs, since it is based on financial statements rather than forecasts.

Regression model of assessment of customer solvency and banking risks in the process of lending

2019 ◽  
pp. 69-73
Author(s):  
Zoryna Yurynets ◽  
Rostyslav Yurynets ◽  
Nataliya Kunanets ◽  
Ivanna Myshchyshyn
Keyword(s):  
Logistic Regression ◽  
Discriminant Analysis ◽  
Regression Model ◽  
Likelihood Ratio ◽  
Credit Scoring ◽  
Bank Loans ◽  
Management Decisions ◽  
Computer Data ◽  
Proposed Model ◽  
Loan Risk

In the current conditions of economic development, it is important to pay attention to the study of the main types of risks, effective methods of evaluation, monitoring, analysis of banking risks. One of the main approaches to quantitatively assessing the creditworthiness of borrowers is credit scoring. The objective of credit scoring is to optimize management decisions regarding the possibility of providing bank loans. In the article, the scientific and methodological provisions concerning the formation of a regression model for assessing bank risks in the process of granting loans to borrowers has been proposed. The proposed model is based on the use of logistic regression tools, discriminant analysis with the use of expert evaluation. During the formation of a regression model, the relationship between risk factors and probable magnitude of loan risk has been established. In the course of calculations, the coefficient of the individual's solvency has been calculated. Direct computer data preparation, including the calculation of the indicators selected in the process of discriminant analysis, has been carried out in the Excel package environment, followed by their import into the STATISTICA package for analysis in the “Logistic regression” sub-module of the “Nonlinear evaluation” module. The adequacy of the constructed model has been determined using the Macfaden's likelihood ratio index. The calculated value of the Macfaden's likelihood ratio index indicates the adequacy of the constructed model. The ability to issue loans to new clients has been evaluated using a regression model. The conducted calculations show the possibility of granting a loan exclusively to the second and third clients. The offered method allows to conduct assessment of client's solvency and risk prevention at different stages of lending, facilitates the possibility to independently make informed decisions on credit servicing of clients and management of a loan portfolio, optimization of management decisions in banks. In order for a loan-based model to continue to perform its functions, it must be periodically adjusted.

FINANCIAL CRISES AND THE PUBLICATION OF THE FINANCIAL STATEMENTS OF BANKS IN SPAIN, 1844–1868

2004 ◽  
Vol 31 (2) ◽  
pp. 1-26 ◽  
Author(s):  
Mercedes Bernal Lloréns
Keyword(s):  
19Th Century ◽  
Financial Reporting ◽  
Economic Performance ◽  
Financial Crises ◽  
Limited Liability ◽  
Financial Statements ◽  
Early Response ◽  
Banking Regulations ◽  
The Stability ◽  
The Relationship

Financial crises have had a decisive influence on banking regulations in Spain. During the mid-19th century the publication of the financial statements of banks was considered key to the stability of the financial system. All new joint stock banking companies were to publish their statements in the Madrid Gazette in return for the privilege of limited liability. Similar obligations were placed on issuing banks. The copious publication of financial statements coincided with a period of financial prosperity. However, the crises that followed from 1864 to 1868 led to a reduction in the official publication of statements. This paper is concerned with an early response to crises in financial reporting. The study focuses on the relationship between the publication of accounting statements by banks and the GDP in Spain during the mid-19th century. The results suggest that the frequency of publication of financial statements may be an indicator of economic performance.

Does Recent Academic Research Support Changes to Audit Reporting Standards?

2016 ◽  
Vol 30 (2) ◽  
pp. 255-275 ◽  
Author(s):  
Jean Bédard ◽  
Paul Coram ◽  
Reza Espahbodi ◽  
Theodore J. Mock
Keyword(s):  
Financial Reporting ◽  
Academic Research ◽  
Financial Statements ◽  
Future Research ◽  
Research Support ◽  
The Public ◽  
Market Participants ◽  
Information Gap ◽  
Public Company ◽  
Reporting Process

SYNOPSIS The Public Company Accounting Oversight Board (PCAOB), the International Auditing and Assurance Standards Board (IAASB), and the U.K. Financial Reporting Council (FRC) have proposed or approved standards that significantly change the independent auditor's report. These initiatives require the auditor to make additional disclosures intended to close the information gap; that is, the gap between the information users desire and the information available through the audited financial statements, other corporate disclosures, and the auditor's report. They are also intended to improve the relevancy of the auditor's report. We augment prior academic research by providing standard setters with an updated synthesis of relevant research. More importantly, we provide an assessment of whether the changes are likely to close the information gap, which is important to financial market participants and other stakeholders in the audit reporting process. Also, we identify areas where there seems to be a lack of sufficient research. These results are of interest to all stakeholders in the audit reporting process, as the changes to the auditor's report are fundamental. Additionally, our summaries of research on the auditor's report highlight where there is limited research or inconsistent results, which will help academics identify important opportunities for future research.

Scoring to estimate the financial statement fraud risk during the audit

2021 ◽  
Vol 22 (11) ◽  
pp. 1262-1275
Author(s):  
Sergei V. ARZHENOVSKII ◽  
Tat'yana G. SINYAVSKAYA ◽  
Andrei V. BAKHTEEV
Keyword(s):  
Discriminant Analysis ◽  
Statistical Method ◽  
Empirical Data ◽  
Financial Statements ◽  
Financial Statement ◽  
Financial Statement Fraud ◽  
Two Stage ◽  
Preparation Methods ◽  
Behavioral Traits ◽  
Fraud Risk

Subject. This article assesses the propensity for material misstatement risk due to unfair actions of persons charged with the financial statements preparation, based on their behavioral traits. Objectives. The article aims to develop a scoring type methodology for identifying the propensity for material misstatement risk due to unfair actions of persons charged with the financial statements preparation. Methods. For the study, we used a multidimensional statistical method of discriminant analysis based on empirical data from an author-conducted survey of 515 employees charged with the financial statements preparation in companies. Results. The article presents a two-stage methodology that helps estimate whether a person has traits associated with a hyperpropensity for financial statements fraud risk. Conclusions and Relevance. The developed methodology for detecting the fraud risk is easy to use. It gives the result in binary form and does not violate the principles of audit ethics. The estimated material misstatement risk due to unfair actions makes it possible to justify the need for appropriate audit procedures when developing a strategy and audit plan.

Assessment of Urban Road Traffic Safety Based on Bayes Discriminant Analysis Method

2013 ◽  
Vol 639-640 ◽  
pp. 544-547
Author(s):  
Chang Ping Wen ◽  
Qing Qing Tian
Keyword(s):  
Discriminant Analysis ◽  
Traffic Safety ◽  
Evaluation Method ◽  
Road Traffic ◽  
Urban Road ◽  
Discriminant Model ◽  
Road Traffic Safety ◽  
Normal Populations ◽  
Proposed Model ◽  
Bayes Discriminant Analysis

Bayes discriminant analysis theory (BDAT) is used to create an evaluation method to determine the condition of urban road traffic safety. The resulting Bayes discriminant model (BDM) is designed to strictly adhere to BDAT. Three indexes including death ratio per ten thousand vehicles, death ratio per hundred thousand bicycles and death ratio per hundred thousand citizens are selected as the factors in the analysis of urban road traffic safety. The grade of condition of urban road traffic safety is divided into three grades that are regarded as three normal populations in Bayes discriminant analysis. Bayes discriminant functions rigorously constructed through training a set of samples are employed to compute the Bayes function values of the evaluating samples, and the maximal function value is used to judge which population the evaluating sample belongs to. The optimality of the proposed model is verified by back-substitution method. The study shows that the prediction accuracy of the proposed model is 100% and could be used in practice.

scholarly journals THE INFORMATION CONTENT OF AUDIT OPINION FOR USERS OF FINANCIAL STATEMENTS

2019 ◽  
Vol 4 (2) ◽  
pp. 91-101
Author(s):  
Andreea Claudia Crucean
Keyword(s):  
Financial Crises ◽  
Stock Exchange ◽  
Financial Statements ◽  
Review Literature ◽  
Important Conclusion ◽  
Audit Opinion ◽  
Reference Guide ◽  
Financial Audit ◽  
Audit Reports

In a market economy with frequent changes, audit is an area that can provide some stability at the economic and social lever, even if the economic and financial crises have questioned the audit work and led to a decrease in the trust of the intended users in the auditors work, leading to a distortion of the primary purpose of the financial audit. The article presents the relevant aspects of the evolution of audit reporting, especially on the underlying issues that expressing qualified opinions or disclaimer of opinion. The content of paper includes a review literature, national and international, and a case study that identified and analyzed the qualified opinions expressed in the auditor’s independent reports, after analysis the financial statements of companies listed on the Bucharest Stock Exchange for the period 2015, 2016 and 2017. The entities were grouped on 9 sectors of activity and researched for each industry if the auditors expressed an unqualified opinion or a modified opinion and if the auditor is part of a Big4 company or belongs to another auditor category. The reasons behind the modified opinions were analyzed and grouped according to the frequency of their appearance in the audit reports. The most important conclusion of the case study was that in all cases, the reasons that led to express modified opinions, was detailed in the auditor’s report, this being considered as a reference guide for the future auditor’s missions, as well as, a recommendation for improving the highlighted aspects.

scholarly journals Lexicographic Goal Programming Model for Bank’s Performance Management

2021 ◽  
Vol 2021 ◽  
pp. 1-7
Author(s):  
Ali AlArjani ◽  
Teg Alam
Keyword(s):  
Saudi Arabia ◽  
Performance Management ◽  
Goal Programming ◽  
Financial Management ◽  
Programming Model ◽  
Financial Statements ◽  
Operating Income ◽  
Proposed Model ◽  
Goal Programming Model ◽  
Lexicographic Goal Programming

Any bank’s financial management is essential to preparing the assets and liabilities for multiple goals. In this paper, we develop an optimal bank model for the financial management department in the Kingdom of Saudi Arabia. The lexicographic goal programming model was used to formulate the banks’ performance management. In this study, the six goals of one of the leading banks in Saudi Arabia, namely, maximize asset, minimize liability, maximize equity, maximize operating income, maximize net income, and maximizing total goal achievements in the financial statement, were studied. To illustrate the model, we have focused on Al Rajhi Bank’s financial statements as a case study. The data was obtained from the banks’ financial statements. The outcomes of the study exhibited that all goals were accomplished. This proposed model is dynamic because it will help examine the banks’ financial strengths located in the kingdom. As a result, the proposed model can guide banking firms in making decisions and developing strategies to deal with numerous monetary circumstances.

scholarly journals Comparison of Dengue Predictive Models Developed Using Artificial Neural Network and Discriminant Analysis with Small Dataset

2021 ◽  
Vol 11 (3) ◽  
pp. 943
Author(s):  
Permatasari Silitonga ◽  
Alhadi Bustamam ◽  
Hengki Muradi ◽  
Wibowo Mangunwardoyo ◽  
Beti E. Dewi
Keyword(s):  
Neural Network ◽  
Artificial Neural Network ◽  
Discriminant Analysis ◽  
Training Data ◽  
Severity Level ◽  
Proposed Model ◽  
Laboratory Test Results ◽  
Critical Phase ◽  
Artificial Neural ◽  
Small Dataset

In Indonesia, dengue has become one of the hyperendemic diseases. Dengue consists of three clinical phases—febrile phase, critical phase, and recovery phase. Many patients have died in the critical phase due to the lack of proper and timely treatment. Therefore, we developed models that can predict the severity level of dengue based on the laboratory test results of the corresponding patients using Artificial Neural Network (ANN) and Discriminant Analysis (DA). In developing the models, we used a very small dataset. It is shown that ANN models developed using logistic and hyperbolic tangent activation function with 70% training data yielded the highest accuracy (90.91%), sensitivity (91.11%), and specificity (95.51%). This is the proposed model in this research. The proposed model will be able to help physicians in predicting the severity level of dengue patients before entering the critical phase. Furthermore, it will ease physicians in treating dengue patients early, so fatal cases or deaths can be avoided.

scholarly journals Analisis Kebangkrutan Perusahaan yang Terancam Delisting di Bursa Efek Indonesia

2019 ◽  
Vol 9 (1) ◽  
pp. 1
Author(s):  
Putri Risnanti ◽  
Eny Kustiyah ◽  
Rochmi Widayanti
Keyword(s):  
Discriminant Analysis ◽  
Stock Exchange ◽  
Financial Statements ◽  
Financial Statement ◽  
First Year ◽  
Z Score ◽  
Multiple Discriminant Analysis ◽  
Corporate Bankruptcy ◽  
Detection Tool ◽  
Second Year

<em>Corporate bankruptcy can be seen from the performance of the company's financial statements. The purpose of this study is to find out how the performance of companies with suspension status in 2018 from January to October in the Indonesia Stock Exchange with 2016-2017 financial statement research. There are 13 companies that have suspension status in 2018 and still publish their financial statements between 2016-2017. The detection tool used in this study is the modified Altman Z-score Multiple Discriminant Analysis. With the results of this study there are six companies in healthy positions in two years between 2016-2017, five companies in bankruptcy positions, one company with the first year in a healthy position while the second year going bankrupt, and one company experiencing bankruptcy in the first year and grey area in the second year.</em>

Sign in / Sign up

Export Citation Format

Share Document