A multicriteria discrimination approach to model qualified audit reports

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 reputation 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-Multigroup Hierarchical DIScrimination). 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 decision makers.