Research Methodology

a. the research methods is used in an article entitled: "Going-concern judgments: An experimental test
of the self-fulfilling prophecy and forecast accuracy". This article uses experimental design with
samples The subject pool consisted of 160 students at a large Midwestern university The primary
method used to collect data in this study is answering clarifying questions, the experimenter
administered a pre-experiment questionnaire to test the subjects
Our research between-subjects experiment involves two treatments: a self-ful- filling prophecy
effect and forecast inaccuracy. Each game involves strategic interaction between two players
assuming the roles of auditor and client
All variables or parameter values, information, and payoffs relevant to a particular cell were
common knowledge to the auditor and client. The steps of each game in the experiment closely
parallel the steps in our game-theoretic model.
b. Task
Initial state determination
The computer plays the role of nature and determines the clients future
state––business termination (B) or survival (S)––which is unknown to the client
and auditor at the beginning of the game. In the experiment, the prior probabilities
of the two states are equal, 1 which suggests that this is a high-risk
engagement

Audit forecast judgment

During the course of an audit, the auditor accumulates evidence that provides
the basis for an imperfect forecast judgment of the client’s viability. The
client knows the auditor’s forecast, y, as it seems reasonable that the auditor
would justify the appropriateness of a going-concern opinion to the client. On
the other hand, if the auditor intends to issue a clean opinion, the client’s information
set is irrelevant, as there is no reason to switch auditors. We combine two forecasts of S or
B to generate three imperfect forecasts, ySS, yBS, and yBB (labeled forecasts 1, 2, and 3,
respectively), with ySS suggesting client survival, yBB suggesting business termination,
and yBS providing a neutral middle case. 2

Auditor’s reporting decision

Based on the auditor’s forecast, P(b), the payoffs, the level of self-fulfilling prophecy
effect, and an expectation of the client’s response, the auditor privately expresses to the
client an intention to render either a clean or going concern opinion. The computer network
relays this intention, displaying it on the client’s computer screen. The self-fulfilling
prophecy effect occurs only if the client retains an auditor who issues a going-concern
opinion. Our model assumes that this effect increases the probability of business
 termination to pSf > pFail. The experiment operationalizes this increase in probability by
increasing the self-fulfilling

The client’s switching decision and the potential successor auditor’s decision
We assume the client becomes aware of the auditor’s intention in sufficient
time to engage another auditor and thus prevent the incumbent auditor’s decision
from becoming public. If the auditor declares the intention to render a
clean opinion, the game ends, as it is presumed that the client will retain the
auditor. Otherwise, the client decides whether to accept the opinion and retain
the auditor or incur the cost to replace the auditor and obtain a second opinion
from an alternative auditor, played by the computer.

Payoff distribution
At the conclusion of each game, the computer displays the payoff screens,
which convey all decisions made, the cash payoff for the game, and the cumulative
cash payoff totaling all completed games. Also displayed are the random numbers
generated to determine the client’s outcome as well as the outcome itself both before and
after the self-fulfilling prophecy effect.