Financial reporting frameworks and distress prediction models in SME auditing: Evidence from the Visegrad Four countries
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Author(s)Michal KarasLink to ORCID Index: https://orcid.org/0000-0001-8824-1594
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Błażej PrusakLink to ORCID Index: https://orcid.org/0000-0002-6526-0407
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Eva Gulyas
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Milos TumpachLink to ORCID Index: https://orcid.org/0000-0003-3389-6803
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Jiri LunacekLink to ORCID Index: https://orcid.org/0009-0009-5473-7917
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DOIhttp://dx.doi.org/10.21511/afc.07(1).2026.11
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Article InfoVolume 7 2026, Issue #1, pp. 128-143
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1 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Type of the article: Research Article
Although financial reporting and auditing standards are substantially harmonized across the European Union, important differences remain in national accounting regulations, audit thresholds, and the practical application of the going concern principle. These differences are particularly relevant for small and medium-sized enterprises (SMEs), which constitute the dominant segment of the Visegrad Four (V4) economies. This paper examines differences in financial reporting and auditing frameworks among the Czech Republic, Hungary, Poland, and Slovakia and develops sector-specific distress prediction models to support going-concern assessments in SME auditing.
The empirical analysis is based on financial statement data for 66,988 active firms obtained from the Orbis database. After data cleaning and consistency checks, a modelling sample of approximately 41,000 SMEs was constructed. Financial distress is defined as a persistent inability to cover interest obligations, represented by two consecutive years in which earnings before interest and taxes (EBIT) are lower than interest expenses. Distress status is modelled using financial ratios, firm-size indicators, industry characteristics, and selected variables inspired by ISA 570. Separate binomial logistic regression models are estimated for country–industry groups derived from NACE classifications and evaluated using hold-out samples.
The results confirm that country- and sector-specific models achieve satisfactory predictive performance and provide useful support for assessing going-concern risks. The results also show that the most informative predictors differ across countries and industries, reflecting differences in regulatory environments and economic structures. The study highlights the importance of local calibration when developing distress prediction models and demonstrates that a universal approach may lead to reduced predictive accuracy. The proposed models provide a practical screening tool for auditors, lenders, and SME managers, complementing professional judgement and broader audit procedures.
Acknowledgments
This study is co-financed by the governments of Czechia, Hungary, Poland, and Slovakia through Visegrad Grants from the International Visegrad Fund. Visegrad Grant No. 22420285, Title of the project: “Distress prediction models in V4 countries and their audit applicability”. The mission of the Fund is to advance ideas for sustainable regional cooperation in Central Europe. The authors gratefully acknowledge the support of their home institutions and thank the anonymous reviewers for their insightful comments and suggestions.
- Keywords
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JEL Classification (Paper profile tab)G33, M41, M42
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References40
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Tables10
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Figures0
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- Table 1. List of potential predictors of distress of SMEs operating in V4 countries applied in own research
- Table 2. Grouping the industry categories using the CART approach
- Table 3. Cox-Snell pseudo R2 results
- Table 4. Regression results – CZ models
- Table 5. Regression results – SK models
- Table 6. Regression results – PL models
- Table 7. Regression results – HU models
- Table 8. ROC testing results (AUC values)
- Table 9. Youden’s J statistic and optimal cutoff
- Table 10. True positive and true negative rates
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An assessment of informal SMEs’ potential in an African economy – theoretical and conceptual framework
Public and Municipal Finance Volume 7, 2018 Issue #2 pp. 1-13 Views: 5992 Downloads: 1105 TO CITE АНОТАЦІЯInformal Small and Medium Enterprises (SMEs) play a key role in their respective economies over the world particularly in the African continent. This paper reviews various theories on SMEs towards understanding the potential of the informal sector in the context of African countries. The paper uses a theoretical approach for the purpose of assessing the challenges that have affected the development of the informal SMEs sector over the years in both the developing and developed world. Economically developing countries in Africa pose unique challenges to informal SMEs development compared to the developed countries. The paper reviews the theories that define the rise to informality in Africa by identifying the key determinants for the emergence of informal SMEs. A conceptual framework for assessing informal SME’s potential for Africa is developed. The conceptual framework is based on the Fishbone diagram developed by Kaoru Ishikawa (1986). This paper discusses the intricacies of the applicability of the proposed conceptual framework to assess the potential of the informal SMEs in Africa and the way forward for the formalization debate.
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Impact of corporate governance mechanisms on financial reporting quality: a study of Indian GAAP and Indian Accounting Standards
Faozi A. Almaqtari ,
Abdulwahid Abdullah Hashed ,
Mohd Shamim ,
Waleed M. Al-ahdal
doi: http://dx.doi.org/10.21511/ppm.18(4).2020.01
Problems and Perspectives in Management Volume 18, 2020 Issue #4 pp. 1-13 Views: 5429 Downloads: 1152 TO CITE АНОТАЦІЯThe present study examines the impact of corporate governance mechanisms on financial reporting quality under Indian GAAP and Indian Accounting Standards (Ind. AS). A sample of 97 companies listed on the Bombay Stock Exchange is selected. Corporate governance mechanisms have been considered as independent variables, and financial reporting quality is the dependent variable. Corporate governance is measured by board effectiveness (board size, independence, diligence, and expertise), audit committee attributes (size, independence, diligence, and expertise), foreign ownership, and audit quality. Descriptive statistics, correlation, and OLS regression are conducted to estimate the results. The study results reveal that board characteristics and audit committee attributes, except for audit committee diligence, have a significant effect on financial reporting quality. However, the impact of board diligence and audit committee attributes is negative. Foreign ownership has no contribution to financial reporting quality, but audit quality has a significant effect. The findings of the study have considerable implications for regulators, policymakers, managers, investors, analysts, and academicians. More emphasis should be given to compliance with Ind. AS, and an oversight body for compliance with Ind. AS should be established.
Acknowledgment
This publication was supported by Deanship of Scientific Research, Prince Sattam Bin Abdulaziz University, Alkharj, Saudi Arabia. -
The influence of digital transformation on the growth of small and medium enterprises in South Africa
Sanele Jeza ,
Lawrence Mpele Lekhanya
doi: http://dx.doi.org/10.21511/ppm.20(3).2022.24
Problems and Perspectives in Management Volume 20, 2022 Issue #3 pp. 297-309 Views: 5364 Downloads: 2086 TO CITE АНОТАЦІЯFrom a global perspective, the business environment has become highly dynamic, unpredictable, and competitive due to external forces – mostly technology – that generate change. The aim of this study is to investigate the influence of digital technologies on South African business sectors. The sample includes small and medium enterprises (SMEs) in the KwaZulu-Natal province. Being qualitative by design, the study used semi-structured interviews for data collection, with eight interviews in the Durban area. SME managers were purposefully selected as participants based on their management positions in the business/company and that they oversee the business operation and understand the influence of digital transformation in the business. The interviews were then transcribed after data collection to determine any recurring themes. In the effectiveness of digital transformation, the study identified themes such as “gaining exposure” and “gaining effective sales figures” as a result of implementing digital transformation, which was indicated by six of eight participants. The findings showed that digital transformation significantly affects building customer relationships and ensuring easy accessibility of the business. The results further indicate online selling and digital marketing as the leading digital platforms successfully implemented by most South African SMEs. Lastly, the study revealed digital maintenance and rapid changes in technology as challenging factors. Moreover, the study recommends that South African SMEs implement more available digital technologies to gain additional exposure.
