Empirical Analysis of Audit Uncertainty Qualifications

Abstract

This study examines the usefulness of financial statement and other data for modeling the auditor's decision process leading to the modification of audit reports for uncertainties. The auditor faces increased responsibility to evaluate and report on uncertainty about a client's continued existence under SAS No. 58 and SAS No. 59 (AICPA [1988]). A model for predicting uncertainty qualifications would be useful as an aid to this reporting decision; it could be applied early in the audit when the auditor forms an expectation of engagement risk and again at the final stage when making the reporting decision. The model could also be used as an expectations model in studies of the information content of qualified audit opinions and for investigating changes in auditors' loss functions.' In addition, a model might provide