Identification of auditor’s report qualifications: an empirical analysis for Slovenia

Abstract

An auditor's report qualifies a company's financial statements if the management's representation of the company's financial affairs is not in accordance with nationally generally accepted accounting pronouncements. The present research studies the qualification of auditors' reports in relation to the circumstances in the company's economic situation that lead to the qualification. Qualifications have been analysed on a sample of 293 large Slovenian companies. The results reveal that companies with qualified auditors' reports have high indebtedness, low liquidity, low efficiency and poor profitability in comparison with companies with unqualified auditors' reports. From a statistical viewpoint, a logistic model can distinguish between companies that received a qualified auditor's report and companies that received an unqualified auditor's report on a sample of Slovenian large companies.

Predicting the type of auditor opinion: Statistics, machine learning, or a combination of the two?

“…◆ Different model validation methods are employed. Results obtained using bootstrap replications (Spathis et al, 2003;Zdolšek et al, 2015), k-fold cross-validation (Kirkos et al, 2007), and differently constructed hold-out samples (Gaganis, Pasiouras, and Doumpos, 2007;Pourheydari et al, 2012) are not directly comparable. Some studies even report classification accuracy in training set, which is known to be overoptimistic.…”

“…Studies report both average (Doumpos et al, 2005;Gaganis, Pasiouras, Spathis et al, 2007) and overall classification accuracy (Gaganis, Pasiouras, and Doumpos, 2007;Kirkos et al, 2007;Pourheydari et al, 2012;Spathis et al, 2003;Yasar et al, 2015), which are not directly comparable. Furthermore, as the proportions of types of audit opinion vary across countries and periods, achieving a high overall predictive accuracy is easier in countries and periods where one type of opinion is dominant -such as in a study done by Zdolšek et al (2015), where a sample from Slovenia with only a 3.93 percent share of qualified opinions in all opinions is used, or in a study by Caramanis and Spathis (2006), where 8 a sample from Greece with 87.57 percent of qualified opinions in all opinions is used -than in those where the two types are more evenly distributed, such as in the study by Dopuch et al (1987), where the share of qualified opinions was 38.41 percent. No studies report the Kappa metric, which corrects for the differences in proportions of types of audit opinion.…”

Auditor’s going-concern opinion prediction: the case of Slovenia

“…Currently there is no publicly available information in Slovenia in relation to going-concern opinions in auditors' reports (data set providers do not collect this data). Therefore, in previous studies (Zaman et al, 2017;Zdol sek et al, 2015) this avenue of research has not been covered.…”

“…Nevertheless, currently there is no publicly available information in Slovenia on going-concern opinions. Previous studies (Zaman et al, 2017;Zdol sek et al, 2015) did not cover this avenue of research.…”

Audit fees and the salience of financial crisis: evidence from Slovenia

“…To respond to the risks related to valuation of financial assets, inventories and receivables, to list just a few, it is plausible to expect a rise in audit prices as a result of increased engagement to carry out a particular audit. Moreover, Zdolšek, Jagrič, and Odar (2015) report that the financial crisis from 2009 onwards additionally increased the interest in auditors' reports. This implies that the work of auditors is becoming more scrutinised by diverse stakeholders, serving as an additional incentive to auditors for increased audit engagement and audit quality.…”