Explain the causes of business unit failure using disclosure of independent auditors' reports

Auditing as one of the mechanisms of corporate governance plays an important role in identifying financial crises. In accordance with auditing standards, the auditor is required to disclose any uncertainties that are relevant to the firm's ability to continue operating in the future. The purpose of the present study is to describe the causes of business failure by disclosing the auditor's report. For this purpose, we use indicators such as the type of auditor's statement, disclosure of related party transactions, disclosure of weak internal controls, disclosure of negative working capital, uncertainty of continuing activity, and disclosure of litigation against the Company in predicting failed companies. Was done. In this regard, the data of 103 screening companies accepted in Tehran Stock Exchange for the years 2007-2018 were used. Logit regression was used to test the research hypotheses. The results indicate that the auditor's modest opinion, disclosure of weaknesses in internal controls, auditor's opinion of continued activity, disclosure of lawsuits against the company have a positive effect on the business unit's failure. Another finding of the study is that the auditor's statement that the working capital was negative and the disclosure of transactions with related parties in the audit report did not affect the entity's failure.