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The usefulness of the audit report in investment and financing decisions

Article  in  Managerial Auditing Journal · August 2003

DOI: 10.1108/02686900310482687

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The usefulness of the audit report in investment and
financing decisions

Antonio DureÂndez GoÂmez-GuillamoÂn

Department of Accounting and Finance, Polytechnic University of Cartagena,
Cartagena, Spain

Keywords for this reason authors suggest the following

Auditing, Reports, Introduction questions:
Investment appraisal, Influence
The present study approaches the problem of Do lenders, investors, and other audiences
Abstract whether the auditor’s report is useful or not react differently to a company if its financial
The usefulness of the auditor’s and, following a line of experimental studies statements carry a qualified opinion? (Estes
report is sometimes called into
initiated in the USA at the beginning of the and Reimer, 1977);
question, the validity of the
information it contains for users 1970s, interviews two communities of users Does the form of auditor association
when making decisions therefore interested in the professional opinion issued significantly influence the banker’s decisions
being criticized. This survey is by the financial auditor on company regarding the acceptance of company loan
aimed, on the one hand, at dealers
applications? (Johnson et al., 1983);
and brokering companies, and, on financial statements, bankers and analysts.
the other at banks to find out In this sense, this study fits in with those Do banks lend less money when a firm’s
exactly how important the audit carried out in relation to the so-called accounts have been qualified? (Firth, 1979).
report is in the investment ``expectation gap’’[1] that occurs when there
decisions that analysts make, as Along this line of investigation, that shows
well as in lending decisions made is a difference between what the customers
by credit institutions. In this expect from the auditor’s work and what they mixed results, the existing empiric studies
sense, the respondents are asked in fact receive from the report. So, the fact were previously carried out by means of two
about the source they consider different methodologies:
that the auditor incorporates ``value added’’
relevant when making decisions,
to the accounting information provided by 1 Laboratory experiments, that is to say,
that is to say, the influence the
auditor’s opinion (clean, qualified, the firms is called into question. In order to extensive and detailed studies without
adverse or disclaimer) has when verify the usefulness of the audit report, this random samples or individuals, but based
investing in and financing on the participants’ convenience or easy
study refers to two communities of users
companies. The results show that
users of audit reports consider the that, by means of a questionnaire, are asked access or on the investigator’s subjective
information provided in the about the importance given to the auditor’s selection criteria, which implies certain
auditor’s opinion as useful and opinion when taking financial and conditions that allow the scientist to
important when making decisions,
investment decisions in companies. The directly control all or nearly all the
both regarding their decisions of
investing in and financing results of our investigation show enough important factors that may affect the
companies as well as the amount evidence to sustain that the audit report is results of the experiment (Dillon et al.,
of the investment or the loan to indeed useful for those interviewed when 1997). In this way, and following this
grant.
making decisions, proving to be so by the fact methodology, authors like Firth (1979,
that it affects the investment and financing 1980), Gul (1987), Pringle et al. (1990),
decisions carried out by dealers, brokering Geiger (1992), Anandarajan and Jaenicke
firms, and credit institutions respectively. (1995), Lasalle and Anandarajan (1997),
Bamber and Stratton (1997), Vico MartõÂnez
and Pucheta MartõÂnez (2001), have verified
Previous research literature the usefulness or relevance of the
As Libby (1979) indicates ``financial information that the auditor provides in
statement information plays a major role in the case of loan decisions to companies or
the credit evaluation phase of the investment decisions on the part of
commercial loan decision . . . ’’ in that sense analysts. However, other investigations,
bank officers as well as analysts attempt to such as those by Estes and Reimer (1977),
ensure accuracy of the financial information Libby (1979), Houghton (1983) and Pany
Managerial Auditing Journal by requiring the audit of that information; and Johnson (1984), suggest that the
18/6/7 [2003] 549-559
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[ 549 ]
Antonio DureÂndez
GoÂmez-GuillamoÂn
The usefulness of the audit
report in investment and
financing decisions
Managerial Auditing Journal
18/6/7 [2003] 549-559
[ 550 ]
information supplied by the audit report
has no effect on the bankers’ decisions.
2 The studies carried out regarding the
``capital market’’, which try to give
relevance to the information contained in
the auditor’s report, for investors,
through its impact on share prices. In this
sense, the investigations carried out by
Firth (1978), Ball et al. (1979), Banks and
Kinney (1982), Chow and Rice (1982),
Dopuch et al. (1987), Wilkerson (1987),
Fields and Wilkins (1991), Loudder et al.
(1992), Chen and Church (1996), Jones
(1996), SaÂnchez Segura (1999), GoÂmez
Aguilar et al. (1999) and Monterrey et al.
(2000), suggest a certain degree of
usefulness; whilst the studies carried out
by Baskin (1972), Alderman (1979), Elliot
(1982), Dodd et al. (1984), Ameen et al.
(1994), Del BrõÂo GonzaÂlez (1998) and Cabal
GarcõÂa (2000, 2001a, b) come to the opposite
conclusion, in such a way that the
relevance of the information contained is
considered little or null.
Unlike the methodologies used to date, the
main contribution of the present study is the
use of the ``survey’’, that allows the obtaining
of results which can be extrapolated to the
whole of the communities being interviewed,
since a considerable number of replies were
obtained.
Methodology
Objectives and hypotheses
It is our purpose to discover the perceptions
that audit report users have about the
qualitative variable that is being measured:
the ``usefulness’’ of the auditing service. In
particular, we are specifically looking for
information regarding credit institution risk
by department directors and analysts
belonging to dealers and brokering
companies. With this aim in mind, a mail-
survey has been prepared containing a series
of questions for both groups in each of their
fields of performance.
The test hypotheses can be stated as
follows:
H01. Credit institutions perceive that the
information given by the auditor’s
opinion is ``not useful’’ when making
their financing decisions.
H02. Analysts perceive that the
information given by the auditor’s
opinion is ``not useful’’ when making
their investment decisions.
Subjects
Credit institutions
A sample design has been obtained that
includes all the credit banks, savings banks
and land banks registered with the Spanish
Central Bank, through the Registro Oficial de
entidades sujetas al control e inspeccioÂn del
Banco de Espan Ä a (Official Registry of Entities
Subject to the Spanish Central Bank’s
Control and Inspection) that amounts to a
total of 231 entities: 88 credit banks, 48
savings banks and 95 land banks.
Analysts
A sample design has been used to represent
this community which has been obtained
from the listing published by the ComisioÂn
Nacional del Mercado de Valores (CNMV ±
Spanish Stock Exchange Commission) by the
Registro Oficial de sociedades y agencias de
valores (Official Register of Spanish Dealers
and Brokering Companies) that comprises
104 entities.
Sample
Once the study population and the
corresponding sample designs were defined,
a random selection of individuals was
carried out. Sampling errors are shown in
Table I.
Data collection
Questionnaires were sent out from
12-16 April 2000. began on 12 April 2000. Then
it was sent again by fax between 9-14 May
2000. The deadline for the reception of
surveys was established for 14 June. Two
different methods have been used to collect
the necessary information for the study, ``by
post’’ and ``by fax’’. The results, which turned
out to be very satisfactory[2], are shown in
the Table II.
Participants
The people interviewed in each group are the
following:
1 Credit institutions: the credit entities
questionnaire was sent to head offices,
addressed to the ``risk department’’ in
charge of loan concessions to companies.
Table I
Sampling errors
C redit institutions Analysts
Sam pling erro r value ‹7 .61 5% ‹12 .033%
n (sam p le) 79 33
p 50 50
q 50 50
n 23 1 104
C on fid enc e level 90 .00 % 9 0.0 0%
Antonio DureÂndez
GoÂmez-GuillamoÂn
The usefulness of the audit
report in investment and
financing decisions
Managerial Auditing Journal
18/6/7 [2003] 549-559
Table II
Survey response
R espo nde nt gro ups P opula tion M ailed
C redit institutions 231 229
A nalys ts 104 103
T otal 335 332
2 Analysts: in this case, the questionnaire
was addressed to ``the manager’’ of the
company.
Construction of the questionnaire
Preparation of the questions
Once the ``target-variable’’ to be measured
had been defined between the groups
interviewed, the questions were then
prepared in order to get the necessary
information; for this, data that had already
been successfully used in other similar
investigations[3] was used as reference, as
well as counting, at all times, on the
collaboration of auditors who were in
practice and teaching. The questions were
edited in ``closed-ended format’’, to make
them easier to answer. The answers to the
questions were given by means of a Likert[4]
scale going from 1 ``in total disagreement’’ to
5 ``in total agreement’’.
Reliability of the questionnaire
In order to verify the reliability of the
questionnaire as being internally consistent
when measuring the qualitative variable of
the ``usefulness of the report’’ for the
financing and investment decisions, we have
applied the pattern of internal consistency
known as Cronbach’s alpha method[5]. This
way, once the ``reliability analysis’’ has been
applied, the following results have been
obtained:
For questions on ``lending decisions’’
taken by credit entities, an alpha value
equivalent to 0.8488 has been obtained.
For questions that measure the relevance
of the auditing report on ``investment
decisions’’, a value of 0.7977 has been
estimated.
From the reliability values obtained, it is
possible to conclude that the questionnaire
has an overall internal consistency[6] that is
acceptable.
Data analysis
Data recording and validation
Once the information had been processed,
with the purpose of avoiding human errors, a
statistical control of ranges was first carried
out for each variable with the aim of
Failed R espo nses R espo nse rate (% )
2 79 3 4.5 0
1 33 3 2.0 4
3 112 3 3.7 3
detecting layers that have been corrected.
Also, and by means of random sampling, a
sample from each one of the groups in the
study was verified, the errors being
statistically non-significant. In the case of
``missing values’’, that is to say, those
questions left unanswered by the
respondents, either deliberately or through
ignorance, they have been considered
statistically non-significant because of their
low number and influence on the results
obtained.
Techniques employed
The analysis of the data begins with an
exploratory study after which we proceed to
test the hypotheses outlined, by means of the
statistical techniques that accounting
specialists have used in the accounting
literature, besides using other more
advanced techniques in order to obtain and
interpret relevant conclusions in a better
way. The hypotheses have been tested with
the non-parametric ``Chi-square test’’, as well
as corroborating the results with the
parametric ``t-test’’[7]. A ``factor analysis’’[8]
has also been made with the purpose of
condensing the information into those
factors that best define each one of the
variables being studied. The application of a
``logistic regression test’’ also helps to clarify
the relationship between the variables
observed at aggregate level.
Descriptive analysis
In total, 79 questionnaires from credit
entities and 33 from analysts are obtained. In
the case of the credit institutions, the number
of questionnaires received has been 19 from
banks, 26 from savings banks and 34 from
land banks; as for analysts, the number of
surveys received was 14 from dealers and 17
from brokering companies.
Table III shows the position held by those
answering the survey, classified by study
groups and under six possibilities: financial
director, manager, accountant, banker,
analysts and others. Out of a total of 112
surveys received, 104 have been classified,
while eight have been counted as missing
values. Inside the option of ``other
employments’’, 39 people have been included
with other positions such as: ``tax manager’’,
[ 551 ]
Antonio DureÂndez
GoÂmez-GuillamoÂn
The usefulness of the audit
report in investment and
financing decisions
Managerial Auditing Journal
18/6/7 [2003] 549-559
Table III
Positions of respondents
P osition C re dit institution s
Financial director
G en eral m ana ger
Ac coun ta nt
B an ker
An alyst
O ther
Su b-total
M issing value s
To ta l
[ 552 ]
``managing director’’, ``internal auditor’’,
``planning manager’’ and ``operating control
manager’’.
Hypotheses tests
Application of the Chi-square test for H01
In order to assess null hypotheses, H01 and
H02, the ``Chi-square test’’ has been used for
those questions outlined for each group
taking part in each of the two hypotheses.
The following results regarding the group of
banks come from Table IV:
1 As for the first question, it can be
observed that the credit entities strongly
agree, statistically significantly, with the
fact that they consider the presentation of
the audit report as something essential so
that audited companies can obtain a
``credit line’’, a ``short-term and long-term
loan’’, a ``bank discount’’ and a ``bank
guarantee’’.
2 When credit entities are asked about
which is the most relevant information
when granting a loan to companies, they
are most in agreement with the fact that it
comes from the Central de Riesgos del
Banco de EspanÄa (CIRBE ± Risk
Information Centre of the Spanish Central
Bank[9]), followed by ``personal
knowledge’’, ``financial statements’’ and
``audit report’’. Nevertheless, they also
express their agreement on the
importance of the information coming
from ``good references’’, ``tax returns’’ and
``private databases’’.
3 Credit institutions also highly agree with
the fact that the type of opinion given by
the auditor (clean, qualified, adverse or
disclaimer) influences their lending
decisions. In this sense, they agree,
although to a lesser extent, with the fact
that the type of opinion given by the
auditor influences the lending amount.
Geiger (1992) and Anandarajan and
Jaenicke (1995) reach the same conclusion
showing that, in the USA, the audit report
R espo nden t group s
Analys ts Total
5 5
7 7
2 2
47 47
4 4
28 11 39
75 29 104
8 ``non-fulfilment of legal regulations’’,
112
affects financing decisions. However,
Libby (1979) concluded by pointing out
that ``subject to’’ qualifications have no
significant impact on the bankers’
judgments.
4 Last of all, they are requested to point out
the ``type of qualifications’’ with most
influence on financing decisions, mostly
agreeing that they are those that come
from ``going concern uncertainties’’,
followed by ``asset valuation errors’’, ``non-
fulfilment of legal regulations’’, ``scope
limitations’’, ``relationships with group
and associated companies’’, ``tax
uncertainties’’ and ``non-fulfilment of
accounting standards’’. Firth (1980)
reaches the same conclusion, in the UK,
when contrasting that ``going concern
qualifications’’ as well as ``valuation of
assets qualifications’’ are the most
relevant when granting a loan to
companies.
With the results obtained, the null
hypothesis (H01) is ``rejected’’ and, therefore,
it is assumed that bankers perceive the
information given by the auditor’s opinion as
decisive when making their lending
decisions.
Application of the t-test H01
The parametric ``t-test’’ has been carried out
to check if the means are significantly
different or not from the normal distribution
in order to corroborate the statistical results
obtained with the non-parametric test (the
tested value is 3); the results are exactly the
same as those obtained with the
non-parametric ``Chi-square test’’.
Application of the Chi-square test H02
The following conclusions have been
obtained from Table V:
In the case of dealers and brokering
companies, the most important
information for carrying out an
investment is obtained by a ``fundamental
analysis’’, followed by a ``technical
analysis’’, ``financial statements’’ and
``personal knowledge’’.
Dealers and brokering companies agree
on the fact that the type of opinion issued
by the auditor does indeed influence their
investment decisions, as well as the
amount to be invested in companies.
This group is also in agreement about the
fact that those qualifications that most
affect their investment decisions are, in
this order: ``going concern uncertainties’’,
those referred to ``assets valuation’’,
``non-fulfilment of accounting standards’’,
Antonio DureÂndez
GoÂmez-GuillamoÂn
The usefulness of the audit
report in investment and
financing decisions
Managerial Auditing Journal
18/6/7 [2003] 549-559
``tax uncertainties’’, ``relationships with
associated and group companies’’ and
``scope limitations’’.
With the results of this test, it is possible to
conclude by rejecting the null hypothesis
(H02) and, therefore, assume that dealers and
brokering companies perceive that the
information given by the auditor’s opinion is
indeed relevant for making their investment
decisions.
Application of the t-test H02
The parametric ``t-test’’ has been carried out
in order to confirm the statistical results
obtained with the non-parametric test (the
tested value is 3). When the parametric test is
applied, we get the same results as in the
``Chi-square test’’, with the exception of the
expression that indicates the most significant
information when carrying out an
investment is obtained from ``tax returns’’,
since the ``t-test’’ shows the differences are
statistically non-significant whilst the
non-parametric test indicates the opposite.
Factor analysis
A factor analysis has been applied, at
aggregate level, with the purpose of obtaining
underlying factors that are smaller in
number and greater in importance than each
one of the variables analysed. The 16
variables are reduced to five main factors
that explain 64.787 per cent of the total
variance. Sampling adequacy of the analysis
is appropriate, as the KMO[10] measure
indicates, when taking a value of 0.737.
Three main factors have been obtained
with the following characteristics:
1 The first factor refers to the question on
what type of information is considered as
most important when financing or
investing in a certain company, and is
defined as being that which comes from
those sources of information of

Table IV
Chi-square test in the case of credit institutions
Test
Q ue stions n C hi-squa re D egrees of freedo m M ean Sign ificanc e
1 . The prese ntation of the aud it report is indispensa ble so
that services are lent, to a co m pan y c om m itte d to a udit,
in the case of obtaining a:
credit line 71 4 5.76 1 1 4.27 0.00 0***
short-term loan 67 4 1.92 5 1 4.17 0.00 0***
long-term lo an 72 5 0.00 0 1 4.38 0.00 0***
bank discount 65 3 6.93 8 1 3.97 0.00 0***
bank guaran tee 69 4 0.71 0 1 4.13 0.00 0***
2 . Th e m ost relevant inform a tion w hen granting a loan is obtained
from :
the audit re port 57 2 4.01 8 1 3.68 0.00 0***
R isk Inform ation C entre 64 5 6.25 0 1 4.18 0.00 0***
priva te datab ases 51 8.647 1 3.42 0.00 3***
perso nal know led ge 63 5 1.57 1 1 4.15 0.00 0***
tax declarations 47 1 1.25 5 1 3.47 0.00 1***
financ ial statem e nts 61 4 2.63 9 1 3.97 0.00 0***
having go od referenc es 51 1 0.37 3 1 3.44 0.00 1***
3 . Express your agreem ent w ith the follow ing statem e nts:
the opinion type influenc es on the d ecision of granting a loan 65 4 6.53 8 1 4.03 0.00 0***
the opinion type influenc es on the d ecision of thequan tity to lend 64 7.563 1 3.36 0.00 6***
4 . The type o f qua lifica tion s w ith higher influe nce o n th e
decision m a king process w h en granting a lo an:
going co ncern unc ertain ties 75 7 1.05 3 1 4.69 0.00 0***
non-fulfilm ent of ac coun ting standa rds 50 1 5.68 0 1 3.47 0.00 0***
tax unce rtainties 50 3 2.00 0 1 3.67 0.00 0***
assets valua tion errors 64 4 5.56 3 1 3.90 0.00 0***
non-fulfilm ent of legal regulations 58 3 6.48 3 1 3.81 0.00 0***
scope lim ita tions 54 3 2.66 7 1 3.73 0.00 0***
relationship w ith a ssoc iated a nd group com p an ies 53 2 8.69 8 1 3.69 0.00 0***
N otes : *** Sign ifican t at 1 per c ent leve l; T he obtained observation s h ave been re classifie d (o ld valu e/ne w value) = 1-2/0 , 4-5/1; Tested values
in percen tage correspo nd: (sc ale value/ per cent expe cted value) = 0/ 50 per cent, 1/5 0 p er c ent; M ea n value s vary in a scale be tw e en 1 ± total
d isagreem e nt up to 5 ± total agre em ent

[ 553 ]
Antonio DureÂndez
GoÂmez-GuillamoÂn
The usefulness of the audit
report in investment and
financing decisions
Managerial Auditing Journal
18/6/7 [2003] 549-559
2 The third factor, which also refers to the
compulsory elaboration for the companies
and, therefore, that which the social
3 A second factor, the same as the fourth,
agents grant an official or institutional
validity. As we can see in Table VI, they
are: the ``audit report’’, the information
obtained from the Central de Riesgos del
Banco de EspanÄa (CIRBE ± Risk
Information Centre of the Spanish Central
Bank), ``tax declarations’’, which are
presented to the Inland Revenue, and
``financial statements’’ that, just like the
``audit report’’, are of compulsory
presentation to the Registro Mercantil
(RM ± Companies Registration Office)
and/or at the ComisioÂn Nacional del
Mercado de Valores (CNMV ± the Spanish
Stock Exchange Commission).
question about what type of information is
considered as most significant when
financing or investing in a certain
company, is defined as being that which
comes from unofficial or private sources of
information and, therefore, is not granted
an official or institutional validity. In this
case, the information is obtained from
``private databases’’, ``personal knowledge’’
and from the fact of having ``good
references’’ on the entity being financed or
the one being invested in.
refers to the question about the most
relevant type of qualifications auditors
include in their reports when providing a
``subject to’’ opinion for financing or
investing. In this sense, a second factor
can be observed that includes
``non-fulfilments of legal regulations or
accounting standards’’ as well as ``assets
valuation errors’’ and ``tax uncertainties’’;
as opposed to the fifth factor that would
include other qualifications arising from
``scope limitations’’ and problems in the
``relationships with associated and group
companies’’. This grouping finds its sense,
on the one hand, in the most important
qualifications and, therefore, which those
interviewed know and interpret in a
better way, and the rest of qualifications
of lesser generalization, in the case of big
companies and, as various authors[11]
point out, for companies trading on the
stock exchange, where ``uncertainties’’
and ``non-fulfilments’’ are the most
recurrent qualifications, and, therefore,
are more widespread and have a greater
impact.

Table V
Chi-square test in the case of dealers and brokering companies
Test
Q ue stions n C hi-squa re D egre es of freedom M ea n Signific anc e
1. The m ost relevant inform ation w hen investing is obtained from :
techn ical a nalysis 25 9.00 0 1 3.6 9 0.003 ***
fun dam e ntal ana lysis 24 (1 ) 4.1 0
-the a udit repo rt 21 1.19 0 1 2.8 1 0.275
R isk Inform atio n C entre 22 1.63 6 1 3.2 9 0.201
private d atabas es 21 0.04 8 1 2.9 7 0.827
person al know led ge 23 9.78 3 1 3.6 3 0.002 ***
tax decla ratio ns 22 2.90 9 1 2.6 8 0.088 *
financ ial statem en ts 21 10 .71 4 1 3.6 6 0.001 ***
having goo d refe rence s 22 0.18 2 1 3.1 6 0.670
2. Expre ss your agreem ent w ith the follo w ing sta te m en ts:
the opinion type influ ences on the decision of in vesting in a com pa ny 25 11 .56 0 1 3.8 1 0.001 ***
the opinion type influ ences on the decision of the quantity to inve st 23 3.52 2 1 3.4 1 0.061 *
3. The type of qualifications w ith h igher influen ce on the
decis ion-m aking process w h en investing:
going con cern unce rtainties 25 (1 ) 4.3 1
non-fu lfilm e nt of acc oun ting standa rd s 23 15 .69 6 1 3.7 8 0.000 ***
tax uncertaintie s 27 15 .38 5 1 3.7 5 0.000 ***
assets valua tion errors 22 (1 ) 4.0 6
non-fu lfilm e nt of le ga l regulations 23 18 .18 2 1 3.8 4 0.000 ***
scope lim itations 26 7.34 8 1 3.5 2 0.007 ***
relatio nship w ith assoc iated an d grou p com pa nies 26 9.84 6 1 3.5 9 0.002 ***
N otes : * Significa nt at 1 0 pe r c ent leve l; * * Significan t a t 5 per ce nt level; *** Sign ifican t a t 1 per cen t level; The ob taine d observations have
be en reclassified (old value /new value ) = 1-2 /0, 4 -5/ 1; Te ste d valu es in percentage corre sp ond: (sc ale va lue / p er c ent expec ted value) = 0/5 0
pe r ce nt, 1/5 0 per cent; M ean valu es vary in a scale b etw een 1 ± total d isagreem e nt up to 5 ± total agreem en t; (1) Test cannot b e carried out
w hen takin g the va riab le a c onstant va lue , in these cas es ``t-test’’ is ap plied

[ 554 ]
Antonio DureÂndez
GoÂmez-GuillamoÂn
The usefulness of the audit
report in investment and
financing decisions
Managerial Auditing Journal
18/6/7 [2003] 549-559
Table VI
Principal components factor analysis: rotated matrix loadings
Factors
Q ue stions 1 2 3 4 5
1 . The m o st relevan t in form ation w hen investing or finan cing
is
obta ined from :
the audit re port 0.623
R isk Inform ation C entre 0.706
priva te datab ases 0.596
perso nal know led ge 0.820
tax declarations 0.726
financ ial statem e nts 0.706
having good refe re nces 0.738
2 . Ex press your agreem ent w ith th e follow ing statem en ts:
the opin io n type influen ces on the dec isio n o f len ding or 0.7 87
investing in a com pa ny
the opin io n type influen ces on the dec isio n o f the quan tity 0.7 81
to invest or to len d
3 . The typ e of qua lific ation s w ith higher in flu ence o n th e
decision m a king proce ss w h en investing or lend ing:
non-fulfilm ent of a ccoun ting standa rds 0 .681
tax unce rtainties 0 .713
assets valua tion e rro rs 0 .692
non-fulfilm ent of legal regula tions 0 .638
scope lim ita tions 0.7 27
relationship w ith a sso ciate d a nd group com p an ies 0.8 11
N ote s: Extrac tion m eth od: prin cip al c om po nent fac to r an alysis; Ro tation m ethod: va rim ax norm aliza tion w ith
K aiser; On ly load ings having absolute value gre ater than 0.50 are show n

Analysis by logistic regression test from ``relationships with associated and

Once the usefulness of the auditor’s
professional opinion has been verified, both
in financing and investing decisions and the
amount that the respondents are willing to
invest or to lend, a logistic regression test has
been applied to check the type of
qualification that has the greatest influence
on making decisions at aggregate level.
In this sense, the first logistic regression
test[12] takes the influence of the auditor’s
type of opinion on the decision to invest in or
finance a company as a dependent variable.
This way, as can be seen in Table VII, ``tax
uncertainty’’ is a type of qualification that is
taken more into account in the
decision-making process than that derived
group companies’’.
The second logistic regression test takes the
influence the auditor’s type of opinion has on
the quantity to invest in or finance a company
as a dependent variable, in the case of credit
institutions and analysts. So, as we can see in
Table VIII, ``scope limitations’’ qualifications
are taken more into account than ``non-
fulfilment of accounting standards’’ ones.
Limitations
Due to the scarce ``sample design’’ of
analysts, and in spite of having obtained
some high rates of response, the
``sampling error’’ is high.

Table VII
Logistic regression on the decision-making process of investing or lending
Ind epen dent variables: (qualifica tions) B ET W ald D egree s of free dom S ig.
Tax unc ertainties 1.5 57 0.7 95 3 .8 33 1 0 .05 0**
Re lationship w ith assoc iated or group co m pan ies 0.8 85 0.5 36 2 .7 28 1 0 .09 9*
Co nstant ±5.642 2.9 21 3 .7 31 1 0 .05 3*
No tes: * Signific ant at 10 pe r c ent leve l; ** Significa nt at 5 p er cent level; M e thod o f the regressio n: ``first ste p
enter’’; O nly significa nt indep en dent variab les are show n; M o del glob al fit (good ness of fit): ±2 lo g
verosim ilitu d = 41.44 5; R 2 of C ox a nd Snell = 0.172; R 2 of N agelke rke = 0.357; Ch i-sq uare = 7 .1 65; d f = 8;
Significanc e = 0.5 19 (Ho sm er and Lem e show )

[ 555 ]
Antonio DureÂndez
GoÂmez-GuillamoÂn
The usefulness of the audit
report in investment and
financing decisions
Managerial Auditing Journal
18/6/7 [2003] 549-559
[ 556 ]
Table VIII
Logistic regression on the quantity of investing or lending
Inde pend ent variable s: (qualifications)
N on -fulfillm e nt o f acco unting stan dards
S cope lim itations
N ote s: * Significa nt at 10 per ce nt level; * * Sign ifican t a t 5 pe r c ent leve l; M ethod of the regression : ``first step
e nter’’; O nly significan t indepe nd ent variables are show n; M od el globa l fit (goodn ess of fit): ±2 log
verosim ilitud = 78.269 ; R 2 of C ox an d Snell = 0.293; R 2 o f N agelke rke = 0.4 08; C hi-squ are = 5.02 7; df = 7;
S ignific ance = 0 .65 7 (H osm er and Lem e show )
As it is characteristic in every ``survey’’,
the questions used to measure the
variables being studied bear a certain
degree of subjectivity, which has been
limited by using questions successfully
used in previous studies.
The questions have not always been
answered by the people for whom the
survey was intended and, therefore, the
results cannot always be considered as
valid.
Conclusions
With the results obtained, we can conclude
by rejecting the null hypotheses that assume
the ``lack of usefulness’’ of the audit report in
``lending decisions’’ made by banks, and in
``investment decisions’’, carried out by
dealers and brokering companies.
Credit banks, savings banks and land
banks strongly agree on the fact that the type
of opinion (clean, qualified, adverse or
disclaimer) issued by the auditor in the
report influences their lending decisions. In
the same way, they agree, although to a lesser
extent, with the fact that the type of opinion
also has its influence on the amount of the
loan to be granted. In that sense analysts also
indicate that the auditor’s type of opinion
does have its influence on taking the decision
to invest or not in a company, as well as on
the amount to be invested.
Both groups distinguish, when making
their investment and lending decisions,
between the sources of information with
legal or public content and others that are of
a private origin. From the aggregate analysis
it can be seen that greater importance is
given to ``tax uncertainties’’ qualifications
than the ``relationships with associated or
group companies’’ ones, when making a
financing or investing decision. At the same
time, they consider ``scope limitations’’ more
relevant than ``non-fulfilment of accounting
standards’’ when deciding on the investment
or loan amount.
Through this study, we have come to the
conclusion that both credit institutions and
dealers and brokering companies consider
B ET W ald D egrees of freed om Sig.
1.005 0.412 5.933 1 0.015 **
1.450 0.434 1 1.1 67 1 0.001 *
the information contained in the auditor’s
report as being relevant and useful for their
investment and lending decisions, in such a
way that it can affect their attitude when
financing or investing in a company, as well
as when they choose the amount to be loaned
and invested.
Notes
1 Porter (1993) defines the ``expectations gap’’ as
the gap between society’s expectations of
auditors and auditors’ performance, as
perceived by society. It is seen to comprise two
components: reasonableness gap (i.e. the gap
between what society expects the auditors to
achieve and what the auditors can reasonably
be expected to accomplish); and performance
gap (i.e. the gap between what society can
reasonably expect auditors to accomplish and
what auditors are perceived to achieve).
2 As Dillon et al. indicate (1997), in the case of
``cold’’ surveys, that is to say those surveys
which are sent out to people who have not
previously committed themselves to
participating, the response rate is not expected
to be any higher than 10-20 per cent. In similar
studies, such as those carried out by GarcõÂa
Benau et al. (1993) and Carro Arana (2000), a
response rate of 15.25 per cent and 23.43 per cent
are obtained respectively, whilst Herrador
Alcaide’s study (2000) reflects a response rate of
31.23 per cent, meaning that a satisfactory
success rate has been obtained in the answers.
3 As Rojas Tejada et al. (1998) show, the fact that
questions already successfully used in other
surveys are being used now, makes the results
more reliable and communicated in a better
way.
4 As Sarabia SaÂnchez et al. (1999) point out, the
use of the Likert scale has the advantage of
being a scale that are easy to understand and
to make as well as having a high degree of
validity and reliability.
5 The formula that defines the alpha coefficient is:
·
Np
ˆ
1‡p · …N ¡ 1†
where the number questions outlined is N and
the average of the correlation between items is
· , taking values of between 0 and 1, so that the
p
higher the value the higher the internal
consistency of the scale.
Antonio DureÂndez 6 As Sarabia et al. (1999) point out, considering
GoÂmez-GuillamoÂn the recommendations of Nunnally (1987) and
The usefulness of the audit Peterson (1994), an alpha value similar to 0.7 is
report in investment and
financing decisions usually considered as the minimum level for
preliminary investigation, 0.8 for basic
Managerial Auditing Journal
18/6/7 [2003] 549-559 investigation and 0.9 for applied investigation.
Nevertheless, another author, Camacho
Rosales (2000), indicates that an alpha level of
0.67 implies a moderately high coefficient of
reliability.
7 Mayper et al. (1988), apart from
non-parametric tests such as the
``Mann-Whitney test’’ use other parametric
ones such as ``T2 of Hotelling’’ and the ``t-test’’.
Bailey et al. (1983) use the ``ANOVA’’ test for
interval-reason scales in the case of ordinal
variables. Nevertheless, and because most
variables are of an ordinal nature,
non-parametric tests should be applied in
preference as numerous authors point out. See
Dillon et al. (1997), Sarabia SaÂnchez et al. (1999)
and Ato GarcõÂ a (1991).
8 Hair et al. (1999) indicate, when summarizing
data with the ``factor analysis’’ technique,
some underlying dimensions are obtained
that, when interpreted and understood,
describe information with a much more
reduced number of concepts than the original
individual variables.
9 The Risk Information Centre is the office that
provides on the creditworthiness of potential
clients of Spanish credit banks.
10 The Kaiser-Meyer-Olkin measure is used to
check sampling adequacy.
11 See the studies carried out by GoÂmez Aguilar
and Ruiz Barbadillo (1999), GonzaÂlez Bravo
and MartõÂn (1999), Villarroya
Lequericaonandia (2000), Cabal GarcõÂ a (2001)
and Cabal GarcõÂ a and Robles Lorenzana (2001).
12 The use of this technique means that the
dependent variables analysed have been
reclassified, so both the decision of financing
or investing and the amount to finance or to be
invested, since their original values vary in a
scale of 1 ``entirely in disagreement’’ up to 5
``entirely in agreement’’. Therefore, when the
original response takes a value of 1 or 2 it is
reclassified in a binary value 0; when it takes
the values of 4 and 5 it is reclassified in the
binary value 1, the original value of 3 being
considered as a missing value.
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