Identification of the most important early

Transcript:Identification of the most important early:
Identification of the most important early indicators of banks failure or success from the point of view of external auditors by using factor analysis Case study on external audit offices in Iraq Fedaa Abd Almajid Sabbar Alaraji - Introduction The continuity in the activity of companies in general and banks in particular has big importance for internal and external parties, represented by the relationship between investors and management, government agencies and other parties. External audit has the role of overseeing this relationship by determining the most important factors and indicators which give an early warning on the continuity of the bank’s activity or its failure over the next period. In recent years, studies and research have focused on determining most factors and indicators which can be used for foreseeing the bank’s continuity or its financial failure. This happened especially after the financial collapses of many international banks without there being any early warning signs from the external audit offices responsible for auditing those banks regarding existing factors and indicators of failure. Over the following period, this caused a trust and credibility crisis in the profession of external auditing. The purpose of the current study is to highlight the financial failure signs for banking institutions which lead to withdrawal of these institutions from the market, in case failure is not predicted in early stages. The international standard of audit number 570 requires from external audit to perform as many procedure as necessary in order to ensure the financial requirements have been prepared in accordance with the hypothesis of business continuity. The responsibility of the external auditor is to predict the financial failure of the company or its ability to continue its activity. Also, the importance of the present study is to complete the studies and research regarding this topic in the Iraqi environment. The study includes three sections. The first section covers the theoretical framework which includes five paragraphs as follows: previous studies, the importance of banks’ continuity, responsibility of external auditor, procedures imposed on the external auditor and duties of external auditor. The second section covers the field study and the third section highlights the conclusions. Procedures imposed on the external auditor to secure their commitment to the work of ensuring the continuity of the banks There are various factors and indicators that the external auditor should take into consideration in order to be able to evaluate the ability of