The AGR Methodology

The AGR® Process

The Audit Integrity Accounting and Governance Risk (AGR®) rating is a forensic measure of the transparency and statistical reliability of a corporation’s financial reporting and governance practices. The focus of AGR analysis is on identifying the measures most highly associated with fraud, and quantifying those risks for interested stakeholders in relation to company stock price, securities litigation, and major restatement probabilities.

Audit Integrity applies over 100 accounting and governance metrics to a company’s publicly filed information. The resulting calculation produces the AGR, a percentile score ranging from 0 to 100, with corresponding ratings from Very Aggressive to Conservative. Companies rated Very Aggressive or Aggressive have proven to be much more likely to face class action litigation and financial restatements, and to suffer severe equity loss. Conversely, those companies that have been consistently rated Conservative have been shown to be the most trustworthy.

Areas of Concern to Stakeholders

• Corporate Governance – compensation, management changes, financial reporting, insider trading and other governance issues are key fraud indicators.
• High-risk Events – M&A, divestitures, restructurings, share repurchases, equity financing and other events associated with fraud.
• Revenue Recognition – accelerating top-line growth through premature, nonrecurring or fictitious revenue activity.
• Expense Recognition – deferring/delaying expenses to improve margins by capitalizing or amortizing expenses.
• Asset-Liability Valuation – over-valuing assets (receivables), under-stating liabilities (payables), manipulating reserves (pensions).

How the AGR® is produced