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 is in the data set Audit. Perform an multiple regression analysis using all of the other variables to explain Delay. The plot of residuals versus quality suggests that
a. there may be a curvilinear realtionship between finished and delay
b. quality may be positively realted to delay
c. the mean of the residuals may not be zero
d. quality does not belong in the regression