Affiliations: [a] Culverhouse School of Accountancy, The University of
Alabama, Tuscaloosa, AL 35487-0220, USA | [b] School of Accountancy, College of Business, Arizona
State University, Tempe, AZ 85287-3606,USA
Note: [1] We are grateful for the insightful comments of Curt DeBerg, Frank Griggs,
Benton Gup, Rob Ingram, Mike Joehnk, Al Leitch, Jane Mutchler, Kurt Pany,
Phil Reekers, Hal Reneau, Mike Roberts, and Mary Stone on earlier drafts of
this manuscript. We also appreciate the financial support from the KPMG Peat
Marwick Foundation and a University of Alabama School of Accountancy Summer
Research Grant.
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.
