Comparative Analysis of the Methods of Financial and Economic Examinations to Determine Insolvency

Abstract

The article describes the methods of financial and economic examinations to determine the insolvency of a company in the Baltic countries, Republic of Armenia, Ukraine, Republic of Belarus, the Russian Federation and Republic of Kazakhstan. The signs of insolvency regulated in legislation of the countries, and international requirements for the validation of expert methods are presented in the article. The authors present the results of a comparative analysis of the considered methods for assessing insolvency and results of testing methods based on data of annual reports of focus group of five Latvian bankrupt companies.
 The research has shown that the expert methods of all eight countries are based on a normative approach — comparing the calculated financial ratios with their normative value. In Ukraine, Republic of Belarus, the Russian Federation and Republic of Kazakhstan, the financial ratios and their normative values are approved in the legislation of the countries. In the Baltic countries and Republic of Armenia, these ratios and their values are developed in approved expert methodologies. The method of «net assets» is also used to assess the solvency of large companies.
 The test results showed that the methods of the countries reviewed are applicable in practice and give a similar assessment of the solvency of companies as a whole. More similar results present the methods of the Baltic countries, Ukraine and Republic of Belarus. The results of the methods of Republic of Armenia, Kazakhstan and the Russian Federation are more similar to each other, but slightly differ from the previously listed group of countries.
 The authors demonstrated the ability to validate the expert methods, which is necessary to use an expert conclusion on the assessment of insolvency as an evidence base in another country.

Financial Ratios for Detection of Company’s Insolvency and Bankruptcy Fraud: Similarities and Differences

“…Courts do not apply the developed and verified bankruptcy forecasting models in practice (Spieciute et al 2013). The financial and non-financial indicators for detecting bankruptcy fraud are specified in legal acts of the Russian Federation, the Republic of Belarus, Ukraine (Liodorova et al 2019), but there is no information about the application of any bankruptcy forecasting model to establish evidence of bankruptcy fraud in these countries.…”

“…An analysis of forensic practice to identify insolvency (bankruptcy) has shown that countries based on the Romano-Germanic legal system, 3 including the Baltic countries, use a normative approach comparing the calculated financial ratios with its normative value (Liodorova et al 2019). The legislative acts establish 10 obligatory ratios that are used in forensic examination to detect bankruptcy fraud in the Russian Federation, the Republic of Belarus and Ukraine.…”