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Supervised By: Prof. Dr. Joel Branson Prepared by: Bahaaeddin Alareeni September , 2009

The Effectiveness of Auditor's opinions and Statistical Models in Bankruptcy Prediction for Public & Limited Companies in the Arab States: "With a focus on Jordan". Supervised By: Prof. Dr. Joel Branson Prepared by: Bahaaeddin Alareeni September , 2009.

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Supervised By: Prof. Dr. Joel Branson Prepared by: Bahaaeddin Alareeni September , 2009

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  1. The Effectiveness of Auditor's opinions and Statistical Models in Bankruptcy Prediction for Public & Limited Companies in the Arab States:"With a focus on Jordan" Supervised By: Prof. Dr. Joel Branson Prepared by: Bahaaeddin Alareeni September, 2009

  2. "The likelihood of financial distress is an important concern about the life or death of any enterprise“. Accountants, auditors and researchers have realized that there is need to reliable auditing tools to help them in assessing the companies' health. Auditors are required by auditing Standards to take into their consideration a set of procedures and indicators that enable them in assessing company’s going concern status. Introduction:

  3. - Collapse of a number of companies in the world and in the Arab States. - A number game. Arthur Andersen. - Arab States: - Jordan - Kuwait

  4. Statistical models: Univariate ratio models (Beaver, 1966). Financial Ratios and Multiple discriminant analysis (Altman, 1968). ZETA analysis ( Altman, Haldeman, Narnyanan, 1977). Multivariate conditional probability models (Ohlson, 1980). Recursive partitioning models (Marais et al., 1984; Frydman et al., 1985).

  5. Statistical models: Haspo models (Haspo, Hisham, 1987). Neural networks (Bell et al., 1990; Koh and Tan, 1999). Linear programming (Wallin and Sundgren, 1995). Hazard model (Shumway, 2001). Multivariate logistic regression model (Geiger, Raghunandan and Rama, 2005).

  6. Statistical models could predict failure with high accuracy rate. The accuracy rates of models were varied from model to another and from year to another. - Altman model (Z-score) was 96% for bankrupt firms, 78.79% for non-bankrupt firms and 83.52% overall. - Zavgren (1985) has used logistic regression. the accuracy rate was 99%. - Ohlson model (1980) was 96%. - Abdulla et al. (2008) have found the accuracy rate of hazard model was 94.9%. Results of literature review:

  7. The effectiveness of auditor opinions and statistical models in bankruptcy prediction of public and limited companies with a focus on Jordan. The effectiveness of auditors' opinions in predicting actual date of bankruptcy. the effectiveness of the statistical models used in bankruptcy prediction. - Altman (Z-score) - logistic regression Study Problem:

  8. The effectiveness of auditor's opinions and statistical models in bankruptcy prediction of companies in Jordan. To realize these aims, it is important to address the following topics: The accuracy rate of statistical models in general and in Jordan in particular. The best model in bankruptcy prediction. The results of the application of statistical models in the Arab States. Benefits of using statistical models in bankruptcy prediction for participants. Study objectives:

  9. The findings and recommendations expected from this study have relevance and importance to following parties: Auditors and auditing professional bodies. Accountants and accounting professional bodies. Financial markets regulators. Financial analysts, investors, and financial institutions. Study importance:

  10. The statistical models. Auditor's opinions. Comparison between both of them. Questionnaires. Study methodology:

  11. The Arab States with a focus on Jordan. Why Jordan? The availability and accessibility of the financial information. The magnitude number of bankrupt companies. Study population

  12. First sample: Number of failure and non-failure companies: Study sample

  13. Conditions: The availability of financial reports for three years prior to bankruptcy. The availability of Audit reports for three years prior to bankruptcy. Fiscal years is ended in December. Companies belong to service and industry sector. Second sample: The financial analysts.

  14. Data collection

  15. Previous studies. Publications and Issuances of (FASB). Issuances of (AICPA). Ministries of commerce and industry. Websites of Arab stock markets. Arab Securities Commissions. 1 - Secondary Sources:

  16. Financial reports of public and limited bankrupt and non-bankrupt companies. Audit reports of bankrupt and non-bankrupt companies. Questionnaire. 2 - Primary Sources:

  17. Analyzing the data resulted from the models application on the financial reports of companies. Analyzing the collected data by questionnaires that will be developed to examine compliance of auditors with (ISA 570). Using (Excel /SPSS Program). Extract conclusions and recommendations. Data Analysis:

  18. The End

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