Information content and recency effect of the audit report in loan rating decisions

• Published in: Accounting and finance (Parkville) Vol. 47; no. 2; pp. 285 - 304
• Main Authors: Guiral-Contreras, Andrés, Gonzalo-Angulo, Jose A., Rodgers, Waymond
• Format: Journal Article
• Language: English
• Published: Melbourne, Australia Blackwell Publishing Asia 01.06.2007; Accounting and Finance Association of Australia and New Zealand; Blackwell Publishing Ltd
• Series: Accounting and Finance
• Subjects: Audit report; Audit report information content; Auditors reports; Audits; Commercial loan officers; Decision making models; Experiments; G21; Information; International finance; Loan officers; M42; Recency effect
• ISSN: 0810-5391; 1467-629X
• DOI: 10.1111/j.1467-629X.2006.00208.x

We examined the significance of the audit report in loan rating decisions using the belief revision model. We designed a laboratory experiment where the sign of the audit report is mixed with other annual financial information in a series of sequential evidence. The results of an experimental design, using 106 loan officers from international financial institutions, support the hypothesis that the qualified audit report appears to be an independent and useful piece of evidence when it is contrary to favourable financial expectations. Our findings also support that the ‘recency effect’ might influence international commercial loan officers’ perception of the qualified audit report.