Predicting audit qualifications with financial and market variables

Article Abstract:

The extent to which models based on market and financial variables predict auditors' decisions to issue audit reports in situations involving uncertainties or contingencies is investigated. A probit model is created in which the dependent variables show whether the company received a qualified opinion, and the independent variables stand for publicly available market and financial variables. The estimated model distinguishes between clean or unqualified opinions and first-time qualifications, and between different kinds of qualifications such as litigation, going concern, asset realizing, and multiple. The predictive accuracy of the estimated model is examined in terms of misclassification expenses for alternative costs of two types of errors, and for specific prior probabilities of clean and qualified opinions.

Models, Accounting and auditing, Accounting, Mathematical models, Variables (Mathematics)

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The effect of informedness and consensus on price and volume behavior

Article Abstract:

Information in public disclosure announcements has traditionally been seen as being mirrored in unexpected price changes. A rational expectations model of competitive trading has been constructed to reveal the two effects of information release: the informedness effect, the degree to which agents become more informed, and the consensus effect, the degree of consensus among agents at the time of the release. Research using the model reveals that both effects simultaneously occur when information is released and influence unexpected price changes and trading volume. Increased informedness leads to an increase in the variance of unexpected price changes and an increase in trading volume. An increase in consensus results in an increase in the variance of unexpected price changes and a decrease in trading volume.

Analysis, Prices, Disclosure (Securities law)

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Negligence versus strict liability regimes in auditing: an experimental investigation

Article Abstract:

The effect of different auditor liability regimes on the supply and demand of auditing services is determined through the examination of 15 experimental markets. The 15 experimental markets, which each had four buyers, two auditors and two sellers of assets, were divided into three types: the negligence liability regime, the strict liability regime and the no-liability regime. The results showed that the negligence and no-liability markets operated consistent to predictions of the behavior of buyers, sellers and auditors. However, significant deviations from predictions were observed in the operation of the strict liability markets.

Malpractice, Auditors

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