Selecting Experimental And Comparison Samples For Use In Studies Of Auditor Reporting Decisions

Previous research has documented an association between financial and/or market variables and the issuance of clean or qualified audit reports in situations involving contingencies or uncertainties (e.g., Bell and Tabor [1986], Dopuch, Holthausen, and Leftwich [1986], Mutchler [1985], and Banks and Kinney [1982]). This research might be characterized as positive or descriptive in the sense that it focuses on the outcome decision but does not determine whether the decision is optimal for particular economic trade-offs facing a particular auditor. For example, in a given set of circumstances, an auditor may risk losing a client if he decides to issue a qualified opinion, and he may risk a lawsuit if he decides to issue an unqualified opinion. In order to investigate these economic trade-offs, experimental and comparison samples are needed in which the economic uncertainty that resulted in report qualifications in the experimental sample was identical to that facing firms in the comparison sample. If experimental and comparison samples are chosen in such a way that the underlying economic uncertainty varies across the samples, tests of the relative costs