Analysts' Reaction to Auditors' Messages in Qualified Reports.

Abstract The article discusses whether the audit report terminology "subject to" and "except for" has any effect on financial analysts' reactions to auditors' reports. A survey was conducted to test the communication effectiveness of the "subject to" opinion and other qualified reports in a design that elicited analysts' reactions and permitted comparison to other reports on identical financial statements. It was found that in terms of credibility added, reliance, and satisfaction, financial analysts did not make any significant distinctions among the "except for," "modified except for," and unqualified opinions. Predictions of adverse reactions to "except for" words in the report, compared to "subject to" words, were not realized. The "except for" report ranked highest for credibility, reliance, and satisfaction achieved, and it was more clearly understood than the others. Analysts properly perceived the disclaimer on unaudited financial statements, the disclaimer based on uncertainty, and the management report as significantly different from the other reports.