A study investigated the relationship between audit delay (Delay), the length of time from a company's fiscal year-end to the date of the auditor's report, and variables that describe the client and the auditor. Some of the independent variables that were included in this study follow.
Industry A dummy variable coded 1 if the firm was an industrial company or 0 if the firm was a bank, savings and loan, or insurance company.
Public A dummy variable coded 1 if the company was traded on an organized exchange or over the counter; otherwise coded 0.
Quality A measure of overall quality of internal controls, as judged by the auditor, on a five-point scale ranging from "virtually none" (1) to "excellent" (5).
Finished A measure ranging from 1 to 4, as judged by the auditor, where 1 indicates "all work performed subsequent to year-end" and 4 indicates "most work performed prior to year-end." A sample of 40 companies provided the following data.
a. Develop the estimated regression equation using all of the independent variables.
b. Did the estimated regression equation developed in part (a) provide a good fit? Explain.
c. Develop a scatter diagram showing Delay as a function of Finished. What does this scatter diagram indicate about the relationship between Delay and Finished?
d. On the basis of your observations about the relationship between Delay and Finished, develop an alternative estimated regression equation to the one developed in (a) to explain as much of the variability in Delay as possible.

  • CreatedSeptember 20, 2015
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