Analysis of accounting quality risk in the MSE reporting sector

Micro and small enterprises (MSEs) in the Central and Eastern European countries (CEECs) have been under pressure from both political and economic changes. To build trust, MSEs must disclose information as clearly as possible, through transparent financial reporting. The article aims to study the impact of eight accounting quality risk indicators, based on MSE-sector financial reporting in the EU countries, particularly in the CEECs. The qualitative research methodology consists of a descriptive study of the financial reporting risks, emphasizing the types of reports and the association thereof with company characteristics. The study is covers a sample of 70 US stock market listed MSEs, which are included in the Audit Analytics database, an online platform collecting information contained in financial statements. The period considered relevant was 2002-2022. A total of 289 flags were identified, 7.97% of which represented CEECs. According to the results, the Altman Z-Score indicator showed the highest (nearly half of the identified flags) impact of the accounting quality risk on the financial statements of MSE in the EU. The Altman Z-Score and the Deviation from Benford's Law index exhibited significant impact on the MSE financial reports in CEECs. Considering the rapid evolution of the possible risks affecting MSE financial statements, as well as the fact that this topic has not been researched thoroughly, the findings are of relevance. Originality/contribution: The contribution of this article can be viewed through the prism of the scarcity of research in this area, which is why this sphere presents potential for further and broader discussion.