A Composite Index for Audit Opinion Shopping Based on Discriminant Analysis Technique

Document Type : Research Paper


1 Ph.D. Candidate, Department of Accounting, Faculty of Economics and Administrative Sciences, University of Mazandaran, Babolsar, Iran.

2 Associate Prof., Department of Accounting, Faculty of Economics and Administrative Sciences, University of Mazandaran, Babolsar, Iran.


Objective: In this article, after reviewing the single index for, we introduce a composite index for measuring this by constructing composite index methodology.
Methods: Using standard linear discriminant method, a weighted composite index was introduced. In order to achieve the weight for each criterion, the financial data of 148 firms listed on the Tehran Stock Exchange during 2007 were analyzed in two groups. Also, to check the robustness of the financial data over 2003-2006, cross-sectional analysis was performed.
Results: The findings showed that the composite index was more comprehensive than the signal index due to its larger dimensions. Also, to test the significance of the index, the success ratio test was used. The results demonstrated the introduced index had higher reliability and can accurately classify the firms into two groups with audit opinion shopping and with no audit opinion shopping.
Conclusion: In general, the proposed composite index had more dimensions and, therefore, could better explain the audit opinion shopping. Also, in the proposed composite index, the index of changing the partner auditor firm had the maximum coefficient, suggesting that changing the partner auditor firm could cause less cost and is less visible. On the other hand, the criteria of changing the auditor firm resulted in obtaining the minimum coefficient in the composite index, i.e. changing the auditor firm did not mean that the employer had access to the unqualified opinion of auditor. These findings provided useful information for investors and policy-markers to explain and detect whether any audit opinion shopping has occurred.


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