The auditors’ position on operational continuity in banks in financial distress^*

ABSTRACT

This article aimed to identify factors that determine the auditor’s position in relation to the operational continuity of banks in financial distress. This research fills a gap in the national literature regarding the auditors’ position on operational continuity in the banking industry - a relationship subject to conflict between the premise of informing the user about operational continuity and the risk of a self-fulfilling prophecy. Understanding the context that explains the action of auditors in relation to going concerns in the banking industry is important for economic agents to comprehend whether and how auditing contributes to an environment of trust, credibility, and security in the financial market, considering that continuity risk warrants an opinion from the auditors, given their role of mitigating informational asymmetry and principal-agent conflicts. The research results contribute to the activities of market and professional regulatory bodies, of economic agents interested in financial disclosure, and of the auditors themselves for understanding and improving auditing work in banks. The methodology used was the identification of cases of financial distress in the Brazilian banking industry between 1990 and 2018 and logit model estimation to verify the determining factors of the position on operational continuity in these cases. The empirical tests showed that the auditor’s propensity to issue an opinion on the operational continuity of banks in financial distress is related to the importance of the client, to state control, to the application of NBC TA 570, and to the indicators of capital adequacy, asset quality, profitability, and liquidity. No relationship was confirmed with Big N auditors and capital of national origin.

Keywords:
banks; auditing; operational continuity; financial distress; audit report