The Measurement of Real-Asset Determinants of Systematic Risk and the Likelihood of Receipt of Uncertainty Qualifications 1

Abstract

The findings of prior research have been inconsistent about the use of systematic risk (beta) as a surrogate for those aspects of the audit environment related to the likelihood of an uncertainty qualification. The purpose of this study is to refine the theoretical framework and measurement issues of this topic through an examination of the association between two real-asset determinants of systematic risk (the degree of operating leverage and the degree of financial leverage) and the likelihood of receipt of an uncertainty qualification. The results indicate that these two leverage measures are not significantly associated with the receipt of uncertainty qualifications in auditing practice.