The auditor's report and banker's credit decisions : a field experiment



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The focus of the study was the effect of the auditor's report on the credit decision behavior of senior bank commercial loan officers. The mathematical Theory of Communication indicates that the message received may have a different meaning and result in a different response by the recipient than the meaning intended and response expected by the sender. The auditor's report represents a significant, if not the only, vehicle for the transportation of the auditor's intended message to the user of audited financial statements. To obtain evidence that the auditor's report influences credit decisions and that different forms of the report are differential in their effects on credit decisions, a field experiment was conducted. A posttest-only control group design was used to structure the field experiment. A sample of 600 senior bank commercial loan officers was randomly selected and then the subjects were randomly assigned to six groups. All of the subjects received identical case materials concerning a hypothetical firm representative of a medium size growth company in the electronics industry. The case materials Included a description of the company, a five-year financial summary, and a complete set of financial statements, including notes at December 31, 1982. The six groups were differentiated only by the inclusion of one of five forms of the auditor's report or the exclusion of the auditor's report entirely. Group 1 did not receive an auditor's report; Group 2 received an unqualified opinion; Group 3 received a "subject to" qualified opinion; Group 4 received an "except for" qualified opinion; Group 5 received an adverse opinion; and Group 6 received a disclaimer of opinion. Each subject was asked to complete and return a two-part questionnaire which included fourteen questions designed to obtain demographic data about the respondent and seven questions structured to determine the respondent's credit decision reaction to the case materials from different perspectives. The seven aspects of the credit decision probed were: 1) amount of the seven million dollar loan requested that was approved, 2) confidence in the credit decision, 3) interest rate appropriate for the loan approved, 4) estimate of the hypothetical firm's 1983 net income, 5) an evaluation of the firm's management, 6) an evaluation of the risk of fraud in the firm, and 7) an evaluation of the company's past success. [...]



Auditors' reports, Bank loans