The informative role of financial reporting in risk detection
The informative role of financial reporting in risk detection

Summary/Abstract: Purpose: The purpose of the article is to show the possibility of risk detection in financial statements by stakeholders using analytical indicators that have predictive (prognostic) value (power), which are also known as early warning indicators or predictors. The purpose is related to the problem of insufficient disclosure of information about risk in the area of accounting, as companies are reluctant to share risk information, although they should disclose it in their reports in accordance with accounting’s overarching principle of presenting the true and fair view of the company.Methodology/approach: The article is part of research on positive accounting theory. The research uses an appropriate set of indicators – predictors – and financial statements as the data source to calculate, analyze, and interpret them to detect a potential risk. The detection of risk using this method is illustrated based on data from the financial statements of automotive companies listed on the Warsaw Stock Ex-change for 2014–2018.Limitations: The article is limited by the small number of companies analyzed, but it covers all automo-tive companies listed on the WSE, which are strongly related to foreign capital.Findings: The use of financial statements to calculate and interpret appropriately selected predictive indicators made it possible to detect potential risks in automotive companies.Originality/value: The article’s originality is that it shows how to detect risk in financial statements using analytical predictive indicators. The author’s contribution is the deliberate selection of such indicators, preceded by case studies of each of the companies. The article confirms the informative role of financial reporting in detecting risk, thus contributing to the science and practice of accounting and risk management

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