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This study investigates the relevance of reported earnings in the context of an institutional environment, i.e., Switzerland, in which investors focus on dividends. In conjunction with a dividend focus, the financial reporting environment faced by Swiss firms provides their managers with more accounting discretion than managers of Anglo-Saxon firms typically have. From a contractual perspective, dividendbased earnings management is expected since Swiss corporate law explicitly states that dividends, which must be voted on by stockholders, are to be based upon a firm's reported earnings. From a value perspective, thin trading conditions and a long-term investment horizon are expected to increase the importance of dividend payments and to influence the informativeness of reported earnings. Results indicate that Swiss managers do engage in dividend-based earnings management, that earnings quality signals are used by managers to voluntarily constrain their accounting choices and that the value relevance of earnings is conditional upon dividend payments.

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A central tenet of audited financial statements is the assumption that the reporting firm will remain in business for the foreseeable future, that is, it is a going concern. However, recent years have seen a wave of highly visible corporate failures that have greatly reduced investors' confidence in auditors' work. This paper develops a tool to evaluate the going concern risk of an audit client, within the risk analysis framework suggested by the auditing literature. The study is innovative along four dimensions. First, new developments in financial statement analysis research are applied to auditing. Second, in addition to quantitative indicators reflecting trends in financial statements, the model also includes qualitative corporate governance characteristics suggested by current audit practice. Third, the concept of going concern failure is broadened and is not restricted to legal bankruptcy. Finally, complementary multivariate classification techniques, logit, linear discriminant analysis, and recursive partitioning are used to provide predictive and interpretative guidance to auditors. Results suggest that a systematic interpretation of financial statements and an evaluation of investment and accounting decisions made by managers would allow auditors to classify firms before the advent of any economic loss. Furthermore, some ratios provide consistent signals about going concern failures. Implications about audit work are then discussed.