Title: A financial auditing approach using failure effect mode analysis

Authors: Saeed Askary; Davood Askarany; Yusuf J. Ugras

Addresses: The American University of Iraq – Baghdad (AUIB), College of Business, Bagdad, Iraq ' School of Business, Department of Accounting and Finance, The University of Auckland, Private Bag: 92019, New Zealand ' School of Business, Accounting Department, La Salle University, 1900 West Olney Ave., Philadelphia, PA 19141, USA

Abstract: This paper proposes adopting Failure Effect Mode Analysis (FMEA) in audit procedures in order to improve the prediction of corporate failures and improve reliance on financial reports. It is well known that corporate failures adversely affect the accounting profession's reputation, public interest, social costs, capital markets, and the national financial and monetary economic system, causing wasted resources by companies and losses by shareholders. In this article, we incorporate various recommendations of Brydon (2019) by suggesting the use of FMEA to strengthen the auditing profession. We are focusing on fundamental financial measures of liquidity and profitability, intending to increase the reliability of going concern issues for the company being audited. This article proposes the FMEA model for a substantial audit reform. FMEA adoption can prevent corporate failures in the future through the proposed model. This research is helpful to standard setters, managers, auditors, and governmental agencies and, finally, can protect the public interest.

Keywords: corporate failures; failure mode analysis; going concern; liquidity; profitability.

DOI: 10.1504/IJADS.2025.143100

International Journal of Applied Decision Sciences, 2025 Vol.18 No.1, pp.1 - 23

Received: 11 Feb 2023
Accepted: 02 Apr 2023
Published online: 03 Dec 2024 *

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