Transformations  in
Business & Economics

ROC CURVE-ENHANCED PRINCIPAL COMPONENT ANALYSIS: RISK ASSESSMENT OF FINANCIAL REPORTING NONCONFORMITY AND CORPORATE INTERNAL CONTROL. EVIDENCE FROM ROMANIAN SOEs
Ionela Florea Munteanu, Norina Popovici, Elena Condrea, Adriana Grigorescu, Corina Aurora Marin Barbu

ABSTRACT. This paper employs a multi-case empirical study of Romanian SOEs that varies in the assessment of financial reports and reflects on the sustainable reporting requirements. We introduce a multivariate analysis supplemented with a ROC curve valuation of nonconformities as essential for predicting and correlating the financial performance with the need to improve internal control systems. The use of nonconformities to address control corporate problems in SOEs can bring a practical dimension to the maturity of corporate control mechanism, with an extended operational applicability. The findings substantiate direct empirical evidence of the interdependence between compliance and error of financial reporting and the need for internal control enhancement. The study is conducted on 111 case studies where the results of public audits were correlated in an assertive assessment of the financial reports of Romanian SOEs. The development of similar research can enhance the valuation of internal control in sustainable reporting.

KEYWORDS:  sustainability reporting, nonconformity in financial performance, financial risk analysis, corporate social responsibility, ROC curve.

JEL classification:  C19, G32, G34, O16.