Predicting Audit Qualifications with Financial and Market Variables.
Abstract ABSTRACT: This paper investigates the extent to which models based on financial and market variables predict auditors' decisions to issue qualified audit reports in situations involving contingencies or uncertainties. A probit model is developed with the dependent variable indicating whether the firm received a qualified opinion, and the independent variables representing publicly available financial and market variables. The estimated model distinguishes between unqualified (clean) opinions and first-time qualifications and between types of qualifications (e.g., going concern, litigation, asset realizing, and multiple qualifications) in the year of the qualification, for both an estimation sample and a holdout sample. The predictive accuracy of the estimated model is evaluated in terms of misclassification costs for alternative costs of type I and type II errors and for specific prior probabilities of qualified and clean opinions.
- DOI
- 10.2308/tar-4496003
- Volume
- 62 (3)
- Pages
- 431-454
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref