LYN BARKESS, ROGER SIMNE’IT AND PAUL URQUHART

FORUM INDEPENDENCE
: AUDITOR

THEEFFECTOF CLIENT FEE

DEPENDENCE ON AUDIT
INDEPENDENCE

I
ndependence is one of auditing’s most fundamen- This paper examines the effect
tal concepts, the actual or perceived absence of
which would present problems for the financial of client fee dependence on the
reporting process. Many factors have caused the inde- independence of audit firms. For the
pendence of auditors to be questioned. The Ramsay
Report (2001) reviewed Australian and international largest 25 audit firms for which fee
standards designed to resolve audit independence revenue and total revenue could be
issues and provides a list of core events which, if they
exist, create a lack of independence in the relationship determined, three research approaches
between auditor and client. These include the provi-
were used to identify whether
sion of non-audit services by the audit firm, audit firm
alumni taking decision-making positions with clients, inappropriate audit opinions
the receiving of gifts not commensurate with the rela-
tionship, and circumstances where the auditor may
are being issued to large-fee clients.
become fee-dependent on particular clients. All situations identified by an audit
The research described in this paper concentrates on
the auditor’s “susceptibility to undue influence or pres-
opinion prediction model as having
sure” arising from fee dependence. Fee dependence a high probability of qualification
becomes an issue when a large proportion of the gross
fees of a practice is received from one client or group of were duly qualified. I t was found
clients and the client is able to exert undue influence or that for the top 25 audit firms,
pressure on the auditor (Ramsay Report 2001). As stat-
ed by Mautz and Sharaf (1961): “Once a few extremely the level of fee dependence from any
important clients begin to dominate the practice of a one client was substantially below the
public accounting firm, the maintenance of real inde-
pendence becomes a truly crucial problem” (p. 213). level suggested in auditing standards.
It is possible in a number of ways to identify or infer In summary, the investigation was
an effect of fee dependence on audit independence.
First, the audit qualification rate of potential fee-depen- unable to identify any instances
dent audits can be compared with the qualification of fee dependence impairing
rates for audits not considered fee-dependent, or actual
audit opinions for potential fee-dependent audits can be the independence of auditors.
compared with predicted opinions from audit opinion
prediction models. Second, quality-control reviews
undertaken by either the profession or the regulator
can be examined to see if fee dependence is identitied
as an issue.’ Third, litigation against auditors can be
reviewed to see if there are instances of fee depen-
dence being identified as a causal factor of audit failure.
Fourth, the effect of fee dependence on the level of
earnings management in the client can be examined.

14 AUSTRALIAN ACCOUNTING REVIEW VOL. 1 2 NO. 3 2002

 The effect of potential fee dependence on reporting
independence is examined in this study. Although the
effect of fee dependence on audit quality is a concern,
its major impact for the financial report user is when
it results in an audit report which is inappropriate in
attesting to the financial position and performance of
the audit client.
The fee dependence of auditing
firms could be examined at three lev-
els: the audit firm level, the office
level or the individual partner level
(Carcello and Hermanson 1992,
Miller 1992, Bartlett 1993,
Trompeter 1994, Craswell, Stokes
and Laughton 2002, Reynolds and
Francis 2000). This study looks at
potential fee dependence at the audit
firm level. The major reasons for this
focus are: (i) professional pro-
nouncements prescribing recom-
mendations have generally been at
the firm level, (ii) in the event of an
inappropriate audit report being
issued, all partners in the firm share
liability (at least until the advent of
limited liability partnerships), (iii) to
minimise the likelihood of litigation,
audit practices and professions
undertake or prescribe quality-con-
trol procedures including second-
partner review and partner rotation,
and (iv) partnership sharing
arrangements in Australia are usual-
ly aimed at the audit firm level.
Mandatory and voluntary disclo-
sure of audit fee information in
Australia makes it possible to under-
take this research for companies
listed on the Australian Stock
Exchange (ASX). Disclosure of
audit fees and non-audit service fees
paid to the incumbent auditor is
required for publicly listed compa-
nies in Australia, and the estimated
total fees for the 25 largest audit
firms in Australia for the 1991-1992
period were published by Chartac
Accountancy News.2 There is no rea-
son to believe that the results for these two years
would not be representative of the results for any
other years.
DEVELOPMENT OF HYPOTHESIS
Earlier research referring indirectly to fee depen-
dence (Goldman and Barlev 1974, Nichols and Price
1976) examined the potential for conflict between
auditor and client and described conditions which
could influence an auditor’s capacity to resist manage-
ment pressures. Goldman and Barlev suggested that
auditors, unlike other professionals such as doctors,
provide a “routine” service and are therefore unable to
exercise much “power” in any conflict situation. This
argument ignores the statutory powers given to the
auditor and the costs to the client of changing audi-
tors. Nichols and. Price recognised the audit function
as one of mutual dependencies. They noted that
dependency was a function of the rewards that one
party can offer the other and the
availability of these rewards in other
relationships3 (p. 337). Conflicts
would be resolved in favour of the
party that was less “dependent” on
the rewards mediated by the other
party. They suggested that rewards
in the auditor-client relationship
include the type of audit report
issued by the auditor and the audit
fee paid by the client.
Shockley (1982) combined these
ideas and developed a conceptual
model relating to potential indepen-
dence problems for auditors.
Shockley argued that where audit
firms were financially dependent on
their clients they would command low
levels of power in any conflict situa-
tion. He suggested this type of power
imbalance could impair independence
and may result in the auditor suc-
cumbing to management requests
and suggested that auditorclient rela-
tionships “seem more consistent with
the concept of mutual dependency
than relative power” (p. 130).
DeAngelo (1981) used the term
“quasi rent” to refer to the revenue
an auditor earned from a particular
client above the variable costs of the
audit, and in her initial analysis
assumed these rents to be equal for
all clients. She explained that “small”
audit firms will have fewer clients
and hence a smaller number of
“quasi rents” than the “large” audit
firms. This provided the basis for the
claim that “large” audit firms offer a
higher audit quality than “small”
audit firms because of their ability
and motivation to maintain indepen-
dence. The rationale behind the claim was that where
an audit firm has many clients, the auditor is less like-
ly to be influenced by any one client. It will be able to
withstand the loss of one client while retaining the
“quasi rents” associated with their large client base.
DeAngelo described a large number of clients as “col-
lateral’’ which serves as an incentive for auditors to
provide an opinionifree of bias. An audit firm with
high levels of collateral has less incentive to “cheat”
for two main reasons: there will be other current
clients if this client decides to switch auditors because
of an audit disagreement; and if the auditor were to
AUSTRALIAN ACCOUNTING REVIEW 15
“cheat” and it was later discovered, the auditor’s r e p
utation would decrease and current clients may
switch auditors.
The pressure exerted on the auditor to issue an
unqualified opinion is related to the perceived and
actual costs to the client arising from qualification
(Dopuch et a1 1986, Fields and Wilkins 1991, Loudder
et a1 1992). Therefore, in times of auditor-client con-
flict, where the client contributes a significant propor-
tion of the audit firm’s revenue, the auditor may be
less able to withstand management pressure and may
be more likely to issue an unqualified opinion
(Craswell et a1 2002, Reynolds and Francis 2000). In
these circumstances a negative relationship will be
observed between higher fee dependent situations
and the rate of audit qualifications. If fee dependence
impairs reporting independence then there will be
evidence to refute the following null hypothesis:
H1: There will be no differences in the audit
qualifications (rate or appropriateness)
issued to clients that contribute a higher
proportion to the total revenue of the audit
firm.
However, audit opinions are a negotiated outcome.
The auditor identifies a material concern, and is like-
ly to discuss this concern with the client who then has
an opportunity to act on it. Thus in many cases an
audit qualification may be regarded as the outcome of
failed negotiations between the auditor and the client.
Because the negotiation aspect introduces so much
noise to the process of observed audit qualifications,
a failure to reject the null hypothesis must be inter-
preted with caution. We address this issue by exam-
ining whether fee dependence is associated with the
appropriateness of audit qualification.While disagree-
ments with management giving rise to audit qualifica-
16 AUSTRALIAN ACCOUNTING REVIEW
tions are very noisy because of this negotiation aspect
and it is difficult to identify areas of auditor-client dis-
agreement from an examination of the financial state-
ments, this is not the case for going-concern qualifi-
cations. A major determinant of goingconcern quali-
fications is the financial profile of the client, which
cannot be negotiated away to the same extent as other
disagreements, and can be identified by sophisticated
going-concern prediction models. The probability of
qualitication according to an audit opinion prediction
model, compared with the instance of qualification,
for higher fee dependent situations is the second
method of testing the hypothesis.
RESEARCH METHODS
This study first identifies clients in the Australian audit
market that contributed more than 0.5%,2.5%and 5%of
their auditor’s total firm r e ~ e n u eThe
. ~ starting level of
0.5% is based on the work of DeAngelo (1981) who
found that Peat Marwick in the United States had only
one client contributing more than 0.5%to total income.
Three methods are then used to try to refute the
above null hypothesis. First, the qualification rates of
audit clients whose gross fees are greater than a spe-
cific proportion of the auditor’s total revenue are com-
pared with the qualification rates for all publicly listed
audit clients, and with the qualification rates of a sam-
ple of companies matched by year, industry and size.
The level of fee dependence is defined as:
Gross fees received from a sinale client5
Total revenue earned by the audit firm
Gross fees, defined as audit fees and fees for non-
audit services paid to the audit firm, were obtained
from Who Audits Australia (Craswell1988,1989,1990,
1991, 1992). Information relating to audit firm rev-
enue was collected from Chartac Accountancy News,
which provides estimates of the total revenue
received by the largest 25 audit firms in Australia.
The second method of testing the hypothesis is to
examine whether inappropriate audit opinions have
been issued for audit clients associated with potential
fee-dependent situations. An audit opinion prediction
model is used to identify the type of audit report
expected, and this is compared with the actual
report. An advantage of this analysis is that it does
not require matching or comparison with other enti-
ties. The inconsistencies between predicted and actu-
al audit reports will identify the extent to which fee
dependence has the potential to affect audit report-
ing. Of particular concern will be situations where
the model predicts a qualification but no qualification
is issued.
The audit prediction models developed to date are
aimed at predicting “subject to” audit qualiications.
In Australia, Monroe and Teh (1993) developed a
model, based on the earlier works of Dopuch et a1
(1987) and Bell and Tabor (1991): aimed at predict-
ing all “subject to” qualifications using a logit model.
The model was constructed using financial statement
and market variables for 1,848 audit reports for
Australian companies between 1984 and 1988. Table 1
shows the variables used in this model.7 This model
was reasonably successful in predicting “subject to”
audit qualiications? with correct prediction rates of
72% to 90% on holdout samples. The success of the
model highlights the fact that in Australia it is possi-
ble to identify with reasonable accuracy the probabil-
ity of a “typical” auditor providing a qualiied opinion
for a particular company, given publicly available
information. Different versions of the model also
incorporate sensitivity analysis for prior probabilities
of “subject to” opinions and consider misclassification
costs of Type I and Type I1 errors.
Monroe and Teh (1993) provided the parameters
for different versions of the model for various esti-
mates of prior probabilities (proportion of “subject to”
qualifications in the population). The version of the
model that will be used is the one that has the closest
prior probability of receiving a “subject to” opinion to
that proportion of “subject to” qualiications identified
for our sample. The 41 observations of 1991 and 56
observations of 1992 of potential fee-dependent situa-
tions (refer Table 2) will be applied to this model,
using not only the same variables as in the model, but
also the weightings identified for each variable. As the
Monroe and Teh model was developed for industrial
and mining companies, all financial institutions were
removed from the sample. This reduced the number
of observations to 34 in 1991 and 43 in 1992. This
approach to determining audit quality is consistent
with the approach used by Craswell (1999).
The third approach to testing for potential fee-
dependent situations is to incorporate an additional
independent variable, fee dependence ratio, into a
logistic regression that includes all other variables in
the Monroe and Teh (1993) audit prediction model.9
The dependent variable for this logistic regression
model is coded 1if the audit report is qualified and 0
if not. This analysis allows a determination of
whether fee dependence is a significant explanator of
audit qualiications, after controlling for other fac-
tors. The main advantage of this method of testing
the hypothesis is that by using a continuous measure
of fee dependence, all levels of fee dependence are
examined, thus eliminating any concerns with using
a cutoff.
The analysis will be undertaken separately for 1991
and 1992. Partitioning the sample by year controls
for those clients that were fee-dependent for both
years. In addition to the potential fee-dependent
clients that were analysed under the second method
of testing the hypothesis, data was collected for a fur-
ther 156 audit clients whose fee dependency ratio
was less than 0.5% (74 in 1991 and 82 in 1992). These
firms were randomly selected in proportion to their
industry representation of the clients whose fee
dependency ratio was greater than 0.5%.This result-
ed in a total of 142 observations in 1991 and 168
observations in 1992.
RESULTS
While AUP 32 recommends that “the auditor should
consider and document the effect on independence
when total fees paid by the audit client exceed 15%of
the gross fees of the practice” (para. 27) ,lo the highest
level of fee dependence found for the period 1988
1992 was 10.2%in 1989.” It appears that the level of
15%,at which the Australian Auditing and Assurance
Standards Board warns audit firms of potential inde-
pendence effects, is quite arbitrary and does not
affect the 25 largest audit firms, which undertake
more than 75%of the audits of Australian publicly list-
ed companies.
Table 2 provides a sensitivity analysis of the num-
ber of publicly-listed clients that contributed 0.5%,
2.5%or 5%or more to their auditor’s total revenue for
the five years 1988 to 1992. The table shows a fall in
the number of clients who may potentially invoke fee
dependence. The number of audit clients contributing
more than 0.5% to their auditor’s total revenue fell
from 76 (6.8%of clients) in 1988 to 41 (4.6%) in 1991.
In 1992, a number of major new listings accompanied
by a general reduction in the underlying client base
saw the number of clients contributing more than
0.5%increase to 56 (7.2%).The number of clients con-
tributing more than 2.5% of their auditor’s total rev-
enue also fell from 16 in 1988 to 6 in 1991, before
increasing to 10 in 1992. The number of clients con-
tributing more than 5%of their auditor’s total revenue
fell from 4 in 1988 to zero in 1991 before increasing to
1 in 1992.
The first method of testing the null hypothesis
involved comparing the rate of qualiication for com-
panies which contribute more than 0.5%to their audi-
tor’s income, to the qualiication rate reported by
AUSTRALIAN ACC 0UNTIN G REVIEW 17
 Craswell (19881992) for all listed companies for each
of the years 1988 to 1992. As can be seen from Table
3, there is evidence for all years except 1988 to refute
the hypothesis, which stated that there will be no dif-
ferences in the audit qualifications (rate or appropri-
ateness) issued to clients that contribute a higher pro-
portion to the total revenue of the auditfirrn.l2
However, it is difficult to draw conclusions about
fee dependence from these results: companies that
invoke potential fee dependence will have different
characteristics from the general population of listed
companies. In particular, size differences and related
firm characteristics (for example, political costs faced,
internal control systems and other monitoring mech-
anisms in place) may influence the likelihood of qual-
ification. Thus, the sample of companies invoking
potential fee dependence was matched with a control
sample of clients that contributed less than 0.5% to
18 AUSTRALIAN ACCOUNTING REVIEW
audit firm income. The matching was first undertak-
en by year, then industry (ASX two-digit industry
code),':j then size (total assets). The requirement to
match total assets to that closest but within +/- 20%.
within a specific industry category, resulted in an
inability to match in many instances. Table 4 provides
the results of the matched pairs sample.
These results, although limited by small sample
sizes, indicate that the initial differences identified in
Table 3 were caused by differences in characteristics
between the sample of potential fee-dependent com-
panies and the population of listed ~ o m p a n i e s .Once
'~
these characteristics were controlled for, the differ-
ences in the qualification rates between potentially
fee-dependent clients and the control sample were not
significant.
In the second method of testing the hypothesis,
data for the 77 industrial and mining companies
identified as contributing more than 0.5% of their
auditor’s total revenue in 1991 and 1992 was
analysed using the audit prediction model. The prob-
ability of qualification, as determined by the model,
was compared with the actual audit opinion issued
by the company auditor.
The output provided by the audit opinion prediction
model is the probability of whether the financial state-
ments should be qualiied. For the group that was
qualified, the average probability of qualification as
determined by the model was 47.7%.This was similar
to the 41.1%identified by Monroe and Teh (1993). For
companies that received an unqualified audit report,
the mean probability of qualification produced by the
Monroe and Teh model was 6.2%,while for this sam-
ple it was 3.5%.This provides further support for the
model by showing that it performed well on a sepa-
rate hold-out sample.
Figure 1 presents in graphical form the companies
identified as being significant to their auditors, ranked
by their probability of qualification according to the
model. All nine companies that were qualified (as indi-
cated by an asterisk in Figure 1) received “subject to”
0pini0ns.l~The figure shows that no company with a
greater than 30%probability of being qualied received
an unqualied opinion. Figure 1 also illustrates the
overall accuracy of the audit opinion prediction model.
Seven of the nine companies which received a “subject
to” audit opinion were identitied as having the highest
probability of qualification by the model. Further, there
was only one qualification for which the model
assigned a very low probability of qualification.16 All
observations in Figure 1 are in potentially fee-depen-
dent situations, and those companies most likely to be
qualied are duly qualified. Thus it appears that audi-
tors are not unduly influenced by the proportion of fees
paid by individual clients and qualify the audit reports
of clients where appropriate.17
In the third method of testing the hypothesis, the
fee dependence ratio was included as an additional
variable in the audit qualification prediction model.
Table 5 provides the results of the logistic regression
used to identify the determinants of audit qualica-
tions. A comparison is provided between the predict-
ed direction for each of the variables included in the
model and the results of the analysis for both 1991
and 1992. Four “except for” audit opinions were clas-
sified as unqualified, in order to be consistent with the
AUSTRALIAN ACCOUNTING REVIEW 19
approach adopted by Monroe and Teh. As the vari-
able of interest, the fee dependence ratio, was
insignificant in both years, this analysis finds no sup
port for the hypothesis that potential fee-dependent
clients are less likely to receive a qualified audit
report than other audit clients.
SMALL AUDIT FIRMS
It is possible that regulations relating to fee depen-
dence at the audit firm level are not aimed at the larg-
er auditing firms, but rather at the smaller auditing
firms with a small number of relatively large audit
clients. Although a lack of disclosure by these organ-
isations of total fee revenue meant that their fee
dependence could not be measured, it was possible to
idenbfy potentially significant audits for these firms.
The audit firms included in this analysis were those
with a maximum of two publicly listed companies as
clients and the audit classed as potentially significant
was that which contributed most to the fee revenue of
the audit firm. The number of such clients identified
ranged from 105 in 1988 to 82 in 1992. These firms
were matched on the same basis as for the earlier
analysis: first by year, then ASX industry code, then,
if possible, total assets. Again the requirement to find
a match within +/- ~ W of O total assets in the same instances of fee dependence impairing the “reporting
industry in the same year was restrictive and reduced independence” of the auditor. The results from this
the number of matched observations by about lo%,
ranging from 95 in 1988 to 73 in 1992. The number of
observations each year and the qualification rates for
those observations are contained in Table 6.
Although the overall qualification rates for significant
clients of small auditors is higher than that identified for
potentially feedependent clients of larger audit firms,
the major finding is that the difference between qualifi-
cation rates for these companies and their matched
sample is insignificant for each of the five years. These and Francis (2000).
results support the view that the potential intluence of Lynn Barkess, Roger Simnett and Paul Urquhart are in
the client’s fees does not significantly affect the likeli- the School of Accounting, University of New South
hood of receiving a qualified audit report.
SUMMARY
This paper contributes to an understanding of fee
dependence and independence issues by examining
the relationship between potential fee-dependent situ-
ations and issued audit opinions.
20 AUSTRALIAN ACCOUNTING REVIEW
The main findings of the paper are:
The levels of fee dependence identified were lower
than those generally mentioned by the regulatory
bodies, with no instances of greater than 15% of
total audit firm revenue being identified for the 25
largest audit firms in Australia.
The audit qualification rate for potential fee-depen-
dent public company audits was significantly lower
than the qualification rate for all public company
audits, but was not significantly different from
the qualification rate for clients with similar
characteristics.
According to an audit opinion prediction model, all
companies which would have been expected to
receive a qualified audit report were issued with
such a report.
The fee dependence ratio was insignificant when
included as a variable in an audit opinion model, for
either of the years 1991 or 1992.
The audit qualification rate for the most significant
public company audit for small audit firms was not
significantly different from the qualiication rate for
audit clients with similar characteristics.
In summary, the paper was unable to identify any
study are consistent with previous literature suggest-
ing that larger companies receive fewer audit qualifi-
cations (for example, Chow and Rice 1982). However,
it finds no evidence that fee dependence is associated
with an inappropriately unqualiied audit report. The
findings of this research are consistent with those of
other recent fee dependency studies, in particular
Craswell, Stokes and Laughton (2002) and Reynolds
Wales. The authors express their appreciation of the
comments of Allen Craswell, Roger Gibson, Wendy
Green, Peter Roebuck, Arnie Wright, and the seminar
participants at the Universities of Alberta, Auckland,
Boston College, Calgary, New South Wales, and the
Accounting Association of Australia and New Zealand
~ ~ conference.
Z )
 NOTES
The published reports of the Australian Securities
and Investments Commission (the regulator of
companies in Australia) were found to contain no
reference to fee-dependent situations. A summary
of the quality review program of the accounting
profession also did not identify fee dependence as
an area of concern (Pierluigi 1996).
This is the only period for which total audit firm
revenue was generally available. Another possible
approach, adopted by Craswell, Stokes and
Laughton (2002), involves approximating total
audit firm revenue by aggregating the fees paid to
that auditor by listed clients contained in the data-
base used.
The “rewards in other relationships” refer to the
advantages that the company could receive by
switching to another auditor or the advantages the
auditor could receive by diverting resources to an
alternative client.
Companies with joint auditors were excluded
from the analysis as the amount received by each
audit firm could not be identified.
This includes fees for audit and non-audit services
provided by the incumbent auditor. Although audit
fees and fees for non-audit services could be exam-
ined separately, gross fees was determined to be the
appropriate numerator when examining fee depen-
dence at the firm level, as this is the most likely
estimate of total fees lost by the firm as a result of
losing the client. Also, the denominator for the
equation reflected both audit and non-audit fees.
Earlier models (eg, Mutchler 1984, 1985, 1986,
Levitan and Knoblett 1985, Menon and Schwartz
1987) had concentrated on a subset of the
“subject to” audit opinions, being going-concern
qualifications.
The financial statement variables identified in
Table 2 were obtained from the annual reports of
companies. The company auditor was obtained
from Who Audits Australia. The market variables
were obtained from various sources, including the
Australian Graduate School of Management, Risk
Measurement Service for Company Betas and
Residual Standard Deviation of Returns, and the
Australian Stock Exchange Database (industry,
returns and age).
“Subject to” audit opinions include uncertainties
relating to going concern, asset realisation, litiga-
tion, multiple uncertainities and scope limitations.
Two changes were made when coding the vari-
ables used in the Monroe and Teh model (out-
lined in Table 1).Big G/Non-Big 6 has been iden-
tified by previous researchers, including De Fond
(1992), as providing the most effective measure of
audit quality; therefore AUDITOR was coded 1 if
Big 6 and 0 if Non-Big 6 (combining AUDITORM
and AUDITORS as Non-Big 6). The second
change involved those companies listed for more
than five years; these were coded 1 for the vari-
able AGEOLD, with other companies coded 0.
This combined the Monroe and Teh category of
companies listed for 3-4 years with listings of less
than 3 years, dispensing with the AGEM category.
This was necessary as there were very few obser-
vations in the category of 3-4 years since listing.
10 Paragraph 28 of AUP 32 further recommends
consideration of fee dependence at the office level
where that office regularly depends on one audit
client for a significant proportion of its total fees,
or at the partner level where one client may be
significant to a partner’s position within a firm.
11 Only in one instance was the fee dependence ratio
greater than 10%. In 1989, the fees paid by
Industrial Equity Ltd represented 10.2%of the total
fee revenue of the audit firm Bowie Hall Wilson.
12 The high proportion of qualifications for listed
companies in Australia is due to the fact that over
the period of this study, “subject to” qualifications
were allowed. Although the qualification rates of
individual audit firms vary, there are no major dif-
ferences between the qualification rates of Big 6
firms compared with Non-Big 6 firms.
13 The ASX uses 23 such industry categories.
14 The exception to this is the year 1988. The qualifi-
cation rate for the matched control sample for this
year appears unusually large (35.1%) on the basis
of a comparison with the population qualification
rate of 22.9% for this year. The qualification rate
for the matched control sample for the years 1989
92 was below the population qualification rate.
15 It is of interest that the qualifications issued to all
clients examined in this research were “subject
to” opinions. Of the companies that were matched
for these years (refer Table 4: 2 of 19 in 1991,2 of
24 in 1992), all the qualifications for the matched
sample were also “subject to” opinions.
16 This company was Brash Holdings, which
received a report which was “subject to” the quan-
tification of a sale of New Zealand operations. It is
interesting that Brash Holdings was placed in
receivership two years later, in 1994.
17 A similar analysis to that described above was also
carried out using the parameters contained in
Monroe and Teh (1993) for different prior proba-
bilities of qualification. As expected, when the
prior probability was reduced (increased) the
overall probability of qualification reduced
(increased) but rankings remained constant.
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