Academic Risk Measures and Audit Qualifications: Evidence from Egypt
Nov 02, 2015
DOI:
Published in: Journal
Publisher: Journal of Emerging Trends in Economics and Management Sciences (JETEMS)
This paper aims to empirically investigate the ability of five academic risk measures, i.e., Working Capital Accruals (WC_ACC), Beneish's MSCORE, Dechow et al.'s FSCORE, the Modified Jones Model (DSS) and Pustylnik's Combined Algorithm Score, to detect and predict audit report qualifications within the Egyptian context. In addition, seven firm characteristics used as control variables are evaluated in the strength of the association between the academic risk measures and such phenomena. To the best of our knowledge, the current study is one of the first attempts to address such a relationship in the Egyptian context. The findings indicate that none of the academic risk measures has an incremental explanatory power to detect and predict audit qualifications. However, the control variables including the audit firm type, firm’s ownership type, the consecutive year losses of the firm and the size of the company can be used as a cheap forecasting alternative in detecting and predicting the audit qualification in the context of Egypt. Furthermore, receiving a qualified audit report is not a reliable signal of earning management.