Financial Risk Analysis Model in the Context of the Romanian Accounting System

Author:Delia Mihaela Ib?ni?teanu (Ionasz)
Position:PhD in progress, University 'Valahia' Targoviste, Romania
Pages:429-440
ISSN: 2067 9211 The Youth of Today - The Generation of the Global Development
429
Financial Risk Analysis Model in the Context of the
Romanian Accounting System
Delia Mihaela Ibănişteanu (Ionasz)1
Abstract: Accounting plays an important role in the risk management process. Based on the information
provided by it, potential risks can be identified and the companys exposure to specific risks can be measured.
The information provided by the accounting is influenced by the accounting model adopted and the way in
which it is presented varies. The Professional Management Accountants Corps (CIMA) in London
underlines the significant implications of accountants in the risk management process and internal control
system of their organisations, professional knowledge adding value to processes (Collier, Berry & Bu rke,
2007, p. 5). The objective of this study is to create a credit risk assessment model using a number of useful
financial rates in the companys creditworthiness prediction. This will be achieved through a quantitative
model designed using real data from companies in op eration or bankruptcy and statistical methods specific to
the modelling oAf this type of risk. The aim o f the research is to provide relevant scientific conclusions
leading to an understanding of the relationship between the Romanian accounting model and the assessment
of financial risk, how they influence each other, and the importance of knowledge link.
Keywords: financial risk; accounting model; risk management; scoring; logit model
JEL Classification: M41; G32
1. Introduction
Currently there are several approaches to financial risk shaping. As commercial banks generally lend
to private firms and they are best suited to the scoring rating model, the study aims to create such a
model. Although scoring also has some drawbacks, it is still one of the most widely used
methodologies used to assess the risk profile of private firms. Three main variables affect the credit
risk: the probability of bankruptcy (noted in the PD literature), default loss (LGD), bankruptcy
recovery rate (RR) and bankruptcy risk exposure (EAD). The main attention was paid to the first
factor assessment (Altman, Resti & Sironi, 2004, p. 183).
The first category of credit risk models were those based on the methodology developed by Merton in
1974, where the bankruptcy process was considered to be driven by the value of the company’s assets.
Merton’s basic intuition was relatively simple: the company went bankrupt when its assets (the
company’s market value) were lower than its debts. The first structured models are outlined by
researchers Black and Cox (1976), Geske (1977) and Vasicek (1984) (Fernandes, 2005, p. 2 ) and they
seek an improvement in Merton’s model by eliminating unrealistic assumptions. With these models
new approaches and concepts are introduced, such as a more complex capital structure, interest
1 PhD in progress, University “Valahia” Targoviste, Romania, Address: Blvd. Regele Carol I 2, Targoviste 130024, Romania,
Tel.:0245 206 101, Corresponding author: delia.ionasz@yahoo.com.

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