Operational Research

, Volume 4, Issue 3, pp 347–355 | Cite as

A multicriteria discrimination approach to model qualified audit reports

  • Charalambos Spathis
  • Michael Doumpos
  • Constantin Zopounidis


This study investigates the contribution of financial and non-financial information to enhance the ability to discriminate between the choices of a qualified or unqualified (clean) audit report. The audit firms face the risk of losing the client if they issue a qualification. On the other hand, failing to qualify exposes the auditor to lawsuits and reputations loss. Financial statements, auditors’ opinions, and the notes to financial statements are examined for a sample of 100 firms. The auditors’ qualification decision is modelled using a multicriteria decision aid classification method (MHDIS-Multi-groupHierarchicalDIScrimination). A comparison with statistical techniques (linear discriminant analysis and logit analysis) is also performed. This study has implications for internal and external auditors and company decisions makers.


Qualified audit report Financial statements Multicriteria decision aid Classification 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Ballas, A. (1994), “Accounting in Greece”,The European Accounting Review,3, 1, 107–121.CrossRefGoogle Scholar
  2. Caramanis, V. C. (1997), “The enigma of the Greek auditing profession: Some preliminary results concerning the impact of liberalization on auditor behavior”,The European Accounting Review,6(1), 85–108.CrossRefGoogle Scholar
  3. Choi, S. K., and Jeter, D. C. (1992), “The effect of qualified audit opinion on earnings response coefficients”,Journal of Accounting and Economics,14, 229–247.CrossRefGoogle Scholar
  4. Courtis, J. K. (1978), “Modelling a financial ratios categoric framework”,Journal of Business Finance and Accounting,5(4), 371–386.CrossRefGoogle Scholar
  5. Dopouch, N., Holthausen, R., and Leftwich, R. (1986), “Abnormal stock returns associated with media disclosures of “subject to” qualified audit opinions”,Journal of Accounting and Economics,8, 93–118.CrossRefGoogle Scholar
  6. Dopouch, N., Holthausen, R., and Leftwich, R. (1987), “Predicting audit qualifications with financial and market variables”,The Accounting Review,LXII(3), 431–453.Google Scholar
  7. Hirst, D. E. (1994), “Auditor sensitivity to earning management”,Contemporary Accounting Research,11, 405–422.CrossRefGoogle Scholar
  8. Hopwood, W., McKeow, J., and Mutchler, L. (1989), “A test of the incremental explanatory power of opinions qualified for consistency and uncertainty,The Accounting Review,LXIV(1), 28–47.Google Scholar
  9. Jensen, M., and Meckling, W. (1976), “Theory of the firm: Managerial behaviour, agency costs and ownership structure”,Journal of Accounting and Economics,3, 305–360.Google Scholar
  10. Keasey, K., and Watson, R. (1987), “Non-financial symptoms and the prediction of small company failure: A test of Argenti’s hypothesis”,Journal of Business Finance and Accounting,14(3), 335–354.CrossRefGoogle Scholar
  11. Keasey, K., Watson, R., and Wynarzcyk, P. (1988), “The small company audit qualification: A preliminary investigation”,Accounting and Business Research 18(72), 323–333.Google Scholar
  12. Kinney, W., and Martin, R. (1994), “Does auditing reduce bias in financial reporting? A review of audit-related adjustment studies”,Auditing: A Journal of Practice and Theory,13, 149–156.Google Scholar
  13. Koh, H. C. (1991), “Model predictions and auditor assessments of going concern status“,Accounting and Business Research,21(84), 331–338.Google Scholar
  14. Koh, H. C., and Killough, L. N. (1990), “The use of multiple discriminant analysis in the assessment of the going concern status of an audit client”,Journal of Business Finance and Accounting,17(2), 179–191.CrossRefGoogle Scholar
  15. Laitinen, E. K., and Laitinen, T. (1998), “Qualified audit reports in Finland: Evidence from large companies”,The European Accounting Review,7(4), 639–653.CrossRefGoogle Scholar
  16. Louder, M. L., Khurana, I. K., Sawyers, R. B., Cordey, C., Johnson, C., Lowe, J., and Wunderle, R. (1992), “The information content of audit qualifications”,Auditing: A Journal of Practice and Theory,11, 69–82.Google Scholar
  17. Mutchler, J., Hopwood, W. and McKeown, J. (1997), “The influence of contrary information and mitigating factors on audit opinion decisions on bankrupt companies”,Journal of Accounting Research,35, 295–310.CrossRefGoogle Scholar
  18. Spathis, C., M. Doumpos and C. Zopounidis (2002), “Detecting falsified financial statements: A comparative study using multicriteria and multivariate statistical techniques”,The European Accounting Review,11(3), 509–535.CrossRefGoogle Scholar
  19. Spathis, C., M. Doumpos and C. Zopounidis (2003), “Using client performance measures to identify pre-engagement factors associated with qualified audit reports in Greece”,The International Journal of Accounting,38(3), 267–284.CrossRefGoogle Scholar
  20. Sundgren, S. (1998), “Auditor choices and auditor reporting practices: Evidence from Finish small firms”,The European Accounting Review,7(3), 441–465.CrossRefGoogle Scholar
  21. Zopounidis, C., and Doumpos, M. (2000), “Building additive utilities for multi-group hierarchical discrimination: The M.H.DIS method”,Optimization Methods and Software,14(3), 219–240.CrossRefGoogle Scholar

Copyright information

© Hellenic Operational Research Society 2004

Authors and Affiliations

  • Charalambos Spathis
    • 1
  • Michael Doumpos
    • 2
  • Constantin Zopounidis
    • 2
  1. 1.Department of EconomicsAristotle University of ThessalonikiGreece
  2. 2.Department of Production Engineering and ManagementTechnical University of CreteGreece

Personalised recommendations