Selecting Experimental and Comparison Samples for Use in Studies of Auditor Reporting Decisions

Wilkerson, Jack E.

doi:10.2307/2491264

Cited by 18 publications

(10 citation statements)

References 7 publications

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“…They also argue that companies showing financial stress receive close public attention. Wilkerson (1987) presents similar arguments. He suggests that when investipting economic trade-ofCs made by auditors in the opinion dedsion, it is important to collect e]q)erimental and control samples in which the uncertainty that resulted in the qualified opinion was identical to those companies in the comparison saii4)le.…”

Section: Problems In Comparing Auditor Opinions To Model Predictions mentioning

confidence: 55%

“…First, these previous studies have estimated statistical models with samples containing both stressed and nonstressed firms, although other research (Aigenti 1976; McKeown, Mutchler, and Hopwood 1991; Menon and Schwartz 1987;and Wilkerson 1987) stiggests that the standard statistical models do not apply simultaneously to both stressed and nonstressed firms and are not reflective of the auditors' decision problem.^ Second, previous studies have failed to properly take into account differences between saiiq>le and population proportions of bankmpt firms. Both of these problems are addressed in this study.…”

mentioning

confidence: 99%

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A Reexamination of Auditor versus Model Accuracy within the Context of the Going‐Concern Opinion Decision*

Hopwood

McKeown

Mutchler

1994

Contemporary Accting Res

255

164

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Tbe Coben Commission and previous researcb bave suggested tbat auditors' opinions are inferior indicators of bankruptcy relative to tbe predictions of statistical models. Tbis researcb reexamines tbis question in Iigbt of two important considerations tbat make tbe comparison between audit opinions and model predictions considerably more reOective of tbe auditors' real-world dedsion environment. First, tbe sample is partitioned into stressed and nonstrnsed observations and tbe importance of doing so is demonstrated; second, tbe statistical models and tbe forecast errors are adjusted so tbat tbey refiect tbe proportion of bankrupt firms actually fiaced by auditors. Tbe empirical results provide convincing evidence suggesting tbat tbe notion establisbed in previous researcb tbat auditors' opinions are inferior to models in predicting bankruptcy is unfounded. It sbould be noted, bowever, tbat neitber tbe auditors' opinions nor tbe bankruptcy prediction model are very good predictors of bankruptcy wben population proportions, differences in misdasification costs, and finandal stress levels are considered. Rtsumi. Les travaux de recbercbe de la Commission Coben et d'autres travaux qui les ont pr6cedes semblent indiquer que les opinions des verificateurs sont des indicateuTS de faillite moins efficaces que les predictions des mod&les statistiques. Les auteurs se pencbent

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Section: Problems In Comparing Auditor Opinions To Model Predictions mentioning

confidence: 55%

mentioning

confidence: 99%

A Reexamination of Auditor versus Model Accuracy within the Context of the Going‐Concern Opinion Decision*

Hopwood

McKeown

Mutchler

1994

Contemporary Accting Res

255

164

View full text Add to dashboard Cite

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“…The second circumstance that traditionally explains the issuance of a GCU refers to audit quality, which includes both competence and independence. With respect to the propensity to issue a GCU, auditors are not mere objective evaluators of the evidence: when the time comes to issue an opinion, they are sensitive to its economic effects (Wilkerson, 1987; Krishnan & Krishnan, 1996; Louwers, 1998). Previous studies have shown that the strategies that they follow in their evaluation differ substantially from those that they follow when they issue an opinion.…”

Section: Factors Affecting the Gc Decision: Research Questions 1 Amentioning

confidence: 99%

Going‐concern Uncertainties in Pre‐bankrupt Audit Reports: New Evidence Regarding Discretionary Accruals and Wording Ambiguity

2008

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This paper extends the traditional view of audit failures related to the going-concern (GC) assumption to two circumstances scarcely analyzed in the audit literature: the earnings overstatement that characterizes firms without a going-concern uncertainty (GCU) in their audit reports and the wording used by auditors in the GC qualifications. We find significant differences between the discretionary accruals of Spanish GC and non-GC companies. After discounting their effect, the client's financial condition loses its significance in the multivariate explanation of the GCU and auditor size is the variable that better explains the qualifications. We also find that a large percentage of GCUs are written ambiguously and with an overuse of conditional language, but no client or auditor attributes significantly explain differences in the GCU wording. Our results support the need to strengthen the enforcement mechanisms, as a GC audit Standard is not, by itself, enough to efficiently control auditor behaviour.

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“…The independent variable is the type of audit repeat issued-wbether it was modified or not. Wilkerson (1987) argued that the auditor's incentives and loss functions from (not) issuing a modified opinion are parameters that must be consido'ed in studies examining audit report modifications. To the extent the loss function influences the reporting decisions of auditors, it also influences the predictive ability of report modifications.…”

Section: Methodsmentioning

confidence: 99%

Predictive Ability of Audit Qualifications for Loss Contingencies*

Raghunandan

1993

Contemporary Accting Res

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. Adequate disclosure of risks and uncertainties is an issue of interest to the accounting profession and regulators both in Canada and in the United States. Previously, auditors were required to modify their audit reports in the presence of material uncertainties. However, following suggestions that such disclosure is redundant and not useful, the CICA removed this requirement in 1980. Auditors in the United States are still required to disclose material uncertainties in the audit report. The criterion of predictive ability is used in this research to evaluate the potential usefulness of this report modification requirement. Specifically, the study examines the ability of report modifications to predict the materially adverse resolutions of pending litigation. The subsequent resolution patterns for a sample of litigation loss contingencies (with an audit report modification) and a control sample of litigation loss contingencies (without an audit report modification) were compared. The results indicate that a larger proportion of contingencies with an audit report modification were resolved materially against the client. Also noteworthy, audit report modifications had incremental predictive ability over other types of disclosures such as footnotes to the financial statements and prior media disclosure of the contingency. Résumé. La présentation adéquate des risques et des incertitudes est une question d'intérêt pour la profession comptable et les responsables de la réglementation, tant au Canada qu'aux États‐Unis. Les vérificateurs étaient auparavant tenus de modifier leur rapport en cas d'incertitudes importantes. Toutefois, à la suite de suggestions selon lesquelles cette information était redondante et sans véritable utilité, l'I.C.C.A. a supprimé cette exigence en 1980. Aux États‐Unis, les vérificateurs sont encore tenus de prvérificateurssenter les incertitudes importantes dans leurs rapports. L'auteur utilise le critère de la capacité de prédiction pour évaluer l'utilité potentielle de cette demande de modification du rapport des vérificateurs. Il examine plus précisément dans quelle mesure les modifications apportées au rapport permettent de pédire si les litiges en instance auront un dénouement défavorable dont les conséquences seront importantes. Les modèles de dénouement ultérieur d'un échantillon de pertes éentuelles attribuantes à des litiges, avec modification du rapport des vérificateurs, et d'un échantillon de contrôle de pertes éventuelles attribuables à des litiges, sans modification du rapport des vérificateurs, ont été comparés. Les résultats de cette comparaison indiquent qu'une plus grande proportion de pertes éventuelles attribuables à des litiges avec modification du rapport des vérificateurs se sont soldées par un résultat défavorable important pour le client. Autre fait digne de mention: les modifications apportées au rapport des vérificateurs présentaient une capacité de prédiction marginale par rapport aux autres types d'information tels que les notes afférentes aux états fina...

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Selecting Experimental and Comparison Samples for Use in Studies of Auditor Reporting Decisions

Cited by 18 publications

References 7 publications

A Reexamination of Auditor versus Model Accuracy within the Context of the Going‐Concern Opinion Decision*

A Reexamination of Auditor versus Model Accuracy within the Context of the Going‐Concern Opinion Decision*

Going‐concern Uncertainties in Pre‐bankrupt Audit Reports: New Evidence Regarding Discretionary Accruals and Wording Ambiguity

Predictive Ability of Audit Qualifications for Loss Contingencies*

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