A theoretical examination of the market reaction to auditors' qualifications

Article Abstract:

An equilibrium model was developed to describe conditions that determine audit qualifications. In this framework, a manager chooses not to revise the financial report and evade a qualification, and instead opts to rationally recognize a qualified audit report since it could play a signalling role, whereby the qualified report facilitates the reliable dissemination of positive private information that can boost the firm's market value. An analysis of the market response to audit qualifications revealed that market reaction to qualified audits could be favorable if the prevailing equilibrium allows it. This is borne of the fact that the observed market reaction to an avoidable qualification involves the mixture of a negative reaction to the findings of the auditor and a positive reaction to the reporting decision of the firm.

Job qualifications

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Determinants of the justifiability of performance in ill-structured audit tasks

Article Abstract:

An examination of decision justifiability as an indicator of auditor performance in an ill-structured audit task revealed the roles played by consultation, authoritative guidance and final decisions. Consultation was found to increase justifiability, with justifiability at its greatest when there is agreement between the decision maker and the consultant. A greater degree of justifiability was noted when the decision maker heeded the consultant's advice. It was also found that justifiability is not influenced by the final decision when there was relatively less authoritative guidance. When more authoritative guidance is provided, however, the final decision and consultation determine justifiability.

Practice

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Evidence about auditor-client management negotiation concerning client's financial reporting

Article Abstract:

A questionnaire is used to elicit information about negotiations between auditors and their clients. Some of the characteristics of these negotiations are that negotiation is complex, normal, time- and resource-consuming, needs expertise, and is dependent upon context.

Canada, Statistical Data Included, Models, Contracts, Accounting firms, Accounting services, Negotiation, Negotiations, Financial statements

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