Accounting report
Mohammad hossein Setayesh; Younes Masoudi; Elias Dehdari; Mina Sadeghi
Abstract
This research explores the impact of mental accounting on audit quality, particularly focusing on how auditors' cognitive biases influence their judgments and decision-making. By understanding these biases, auditors can better identify risks and improve audit processes. The study is applied, quantitative, ...
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This research explores the impact of mental accounting on audit quality, particularly focusing on how auditors' cognitive biases influence their judgments and decision-making. By understanding these biases, auditors can better identify risks and improve audit processes. The study is applied, quantitative, and descriptive, conducted through surveys with 203 certified accountants in Iran. The findings indicate that mental accounting affects auditors' judgments, the allocation of partners' working time, and performance defense costs in lawsuits, but it does not impact auditor independence. The research concludes that mental accounting influences overall audit quality. By increasing auditors' awareness of mental accounting and its effects, the quality of their audits can improve. These insights highlight the importance of recognizing behavioral biases in auditing to enhance the effectiveness and accuracy of audit practices. IntroductionIn a world without audits, trust in financial reporting would erode, leading to chaos in financial statements. Audit quality is essential for ensuring reliability and transparency, serving as a safeguard against errors and fraud. Understanding auditors' cognitive processes, particularly mental accounting, is crucial for enhancing audit quality and improving decision-making in the classification of financial resources.In the 1980s, Richard Thaler and Amos Tursky popularized the concept of mental accounting, demonstrating how mental limitations can lead to irrational financial decisions. This theory, widely accepted by psychologists, economists, and auditors, consists of three key elements: the coding, classification, and evaluation of mental accounts. Additionally, expectations theory addresses decision-making under risk. By understanding mental accounts, auditors can gain valuable insights into financial behaviors, ultimately improving audit quality. This makes mental accounting a vital tool for combating financial abuses and enhancing overall financial integrity.Research hypothesesMental accounting influences audit quality.Mental accounting affects the auditor's judgment.Mental accounting impacts the ratio of partners' work time to the total work time in the audit budget.Mental accounting influences the auditor's independence.Mental accounting affects the process of defending performance costs in lawsuits.Literature ReviewAudit quality is rooted in trust and confidence, stemming from auditors' adherence to professional standards and their ability to provide reliable information. It can be likened to a trustworthy friend who keeps promises, relying on key elements such as competence, independence, honesty, and professional skepticism. Definitions of audit quality vary but generally emphasize auditors’ ability to detect violations and ensure high-quality financial reporting. Compliance with audit standards serves as a key indicator of audit quality. Furthermore, the theory of mental accounting enhances audit quality by enabling auditors to better understand financial processes and how individuals categorize their resources, making it a valuable tool for improving overall audit practices.Integrating mental accounting with audit quality can significantly enhance the audit process and build trust in financial reporting. Mental accounting identifies behavioral biases that influence auditors' decision-making by examining how financial resources and decisions are categorized. By recognizing these biases, auditors can implement strategies to mitigate their effects, thereby improving audit quality. Additionally, applying mental accounting principles helps auditors select effective methods for gathering and interpreting evidence, ensuring more reliable and accurate audits. This synergy fosters greater accuracy and reliability in financial reports, ultimately strengthening public trust in the audit system.MethodologyThis research adopts an applied approach and a survey method to enhance auditing knowledge, focusing on partners, managers, and certified accountants from A-grade audit institutions in Iran. Data collection was conducted using a questionnaire, whose validity was confirmed through face validity and necessary revisions. Reliability was established using Cronbach's alpha, ensuring the questionnaire is a reliable tool for measuring the research variables.ConclusionThis research highlights the role of mental accounting in enhancing audit quality, building on Thaler's foundational work. It identifies four specific variables to measure audit quality, demonstrating that mental accounting affects auditors' judgments, partners' work time allocation, and defense costs in lawsuits, but not auditor independence. The findings confirm that mental accounting positively influences audit quality, aligning with earlier studies by Bonabi Ghadim and Karbasi Yazdi (2013) and Stephen (2018).Additionally, the research examined the influence of participants' demographic information on the hypotheses, concluding that these factors did not affect the outcomes, as the results remained consistent across all demographic groups.AcknowledgmentsIn conclusion, we extend our gratitude to the partners, managers, and members of the public accountants’ community in Iran for their invaluable assistance and the generous time they dedicated to supporting this research.
Profitability
Hanie Hekmat; Vahid Heydarzadeh khalife khandi; Razieh Ghorbani
Abstract
The purpose of this research is to investigate the moderating role of conservatism in the relationship between audit quality and earnings management. The current research is analytical and correlational. Furthermore, this study is considered quantitative based on the nature and characteristics of the ...
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The purpose of this research is to investigate the moderating role of conservatism in the relationship between audit quality and earnings management. The current research is analytical and correlational. Furthermore, this study is considered quantitative based on the nature and characteristics of the data used to analyze the hypotheses. Data collection involved first using the library method, followed by statistics provided by the Tehran Stock Exchange Organization. The findings obtained from the regression model, based on a sample of 110 companies listed on the Tehran Stock Exchange over an 8-year period from 2015 to 2022, indicate that audit quality has an inverse and significant relationship with earnings management. Additionally, it was found that conservatism influences the relationship between audit quality and earnings management. The results concluded that conservatism reduces earnings management by recognizing losses promptly and delaying the recognition of profits. Since audit quality reduces information asymmetry, it limits profit manipulation through earnings management. In this context, conservatism plays a vital role in restricting managers' opportunistic reporting. Also, conservatism diminishes the company's incentives for earnings management, thereby reducing biases caused by managerial opportunism in accounting. Consequently, conservatism is expected to have a moderating role in the relationship between audit quality and earnings management, and the findings of this research confirm these expectations.IntroductionThe objective of this research is to investigate the moderating role of accounting conservatism in the relationship between audit quality and earnings management. In today's capital markets, earnings management has become a critical concern. It is a tool used by company management to influence earnings so that the numbers reach a predetermined target. This approach is employed for various reasons, one of which is earnings smoothing. As a result, instead of experiencing years of abnormally high or negative earnings, companies aim to maintain relatively stable results by employing innovative accounting tactics (Ismail et al., 2022). The main objective of financial statement auditing is to assure users that the financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). According to IFRS, financial reporting must provide truthful information, ensuring that financial statements accurately present the information they claim to provide. It is therefore logical that audit quality has an inverse relationship with the occurrence of earnings manipulation (Ismail et al., 2022). There is also substantial research suggesting that the level of accounting conservatism may reduce the practice of earnings management (Chen et al., 2007; Ball et al., 2000; Khan & Watts, 2009; Aminu & Hassan, 2018; Li et al., 2018). Chen et al. (2007) argued for the existence of a trade-off in conservative practice. Adopting the principle of conservatism may lead to more noise in accounting reports, potentially reducing the value of the stewardship role. On the other hand, this principle may decrease the practice of earnings management. However, Chen et al., (2007) asserted that under reasonable conditions, the reduction in earnings management is sufficient to compensate for the noise caused by excessive accounting conservatism. Legislators, standard setters, and academics have expressed concern that companies use conservative accounting coverage to manage earnings (AICPA, 1939; Devine, 1963; FASB, 1980; Levitt, 1998; Penman, 2001). A significant number of previous studies link the effects of earnings management to audit quality issues (Chowdhury & Eliwa, 2021). The importance of this research lies in its effort to fill the gap in understanding the moderating role of accounting conservatism in the relationship between audit quality and earnings management. MethodologyResearch Type: Based on its objective, this research falls under the category of applied research. Applied research uses the theories, principles, and techniques developed in basic research to address practical, real-world problems. In terms of methodology and nature, this research is a correlational study. Additionally, it is considered descriptive research, as the researcher does not intervene in the position, state, or role of the variables. The research method is inductive.Data Collection: Data collection will be conducted in two stages. In the first stage, a literature review will be performed using library resources and specialized Persian and English texts to establish the theoretical and conceptual framework of the research. In the second stage, financial data for the research will be extracted from the financial statements of companies listed on the Tehran Stock Exchange.Data Analysis: Eviews software will be used to analyze the collected data.Population and Sample: The population of this study includes all companies listed on the Tehran Stock Exchange between 2015 and 2022 (eight years). After applying the necessary limitations, the sample size for this research will consist of 110 companies listed on the Tehran Stock Exchange, representing 880 company-years. It is important to note that only listed companies are included in the study. ResultHypothesis 1: To test the first hypothesis of the study, Model (1) was used. The results of the model estimation show that the coefficient of audit quality (0.3645) is significant at the 5% level, indicating a significant inverse relationship between audit quality and earnings management. Among the control variables, firm size, sales growth, and research and development expenses exhibit a positive and significant relationship with earnings management, while financial leverage shows a negative and significant relationship. Additionally, it was found that book value, operating expenses, and sales volatility do not have a significant relationship with earnings management. The variance inflation factor values confirm the absence of multicollinearity among the explanatory variables. The significance of the F-statistic (3674.6) at the 1% level demonstrates that the model is significant. The Durbin-Watson statistic (2.0803) indicates no autocorrelation problem in the model components. Furthermore, the coefficient of determination shows that the independent variable explains approximately 53% of the variation in total. Based on these results, the first hypothesis of the study is not rejected at the 5% confidence level.Hypothesis 2: To test the second hypothesis of the study, Model (2) was used. The results show that the coefficient of the audit quality variable (0.6577) is significant at the 5% level, indicating a significant inverse relationship between audit quality and earnings management. The coefficient of the conservatism variable (0.7305), significant at the 10% level, reveals a significant inverse relationship between conservatism and earnings management. Finally, the combined coefficient of determination for audit quality and conservatism (0.5913) is significant at the 5% level, indicating that conservatism moderates the relationship between audit quality and earnings management. The variance inflation factor values confirm the absence of multicollinearity among the explanatory variables. The significance of the F-statistic (1893.6) at the 1% level demonstrates that the model is significant. The Durbin-Watson statistic (2.1972) indicates no autocorrelation problem in the model components. Furthermore, the coefficient of determination shows that the independent variable explains about 51% of the variation in total. Based on these results, the second hypothesis of the study is not rejected at the 5% confidence level. ConclusionThe results of the test for the first hypothesis indicate a significant inverse relationship between audit quality and corporate earnings management. Low audit quality occurs when audited financial statements contain errors that the auditor has not identified or disclosed in their report. Therefore, audit quality can be associated with the quality of financial reporting, as higher audit quality ensures higher reporting quality. The presence of audit quality reduces in information asymmetry, which in turn decreases earnings manipulation through earnings management. These results are consistent with the research of Hanoun et al. (2010), Alzoubi (2017), Fatahi Nafchi, and Fazel Dehkordi (2018), and Khajavi and Maimand (2015). The results of the test of the second hypothesis show that conservatism has a moderating effect on the relationship between audit quality and earnings management. Audit quality reduces information asymmetry, which subsequently decreases earnings manipulation through earnings management. In this context, conservatism plays an important role in restricting opportunistic reporting by managers. Furthermore, conservatism reduces a company's motivation for earnings management, thereby mitigating the biases caused by opportunism in accounting.
Audit Quality
Akram Afsay
Abstract
The purpose of this study is to examine the relationship between financial expertise and the experience of the audit committee chairman with auditor selection, audit fees, and audit quality. To achieve the research goal, a sample equal to 99 companies listed on the Tehran Stock Exchange during the period ...
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The purpose of this study is to examine the relationship between financial expertise and the experience of the audit committee chairman with auditor selection, audit fees, and audit quality. To achieve the research goal, a sample equal to 99 companies listed on the Tehran Stock Exchange during the period from 2015 to 2023, equivalent to 792 company-years, was analyzed using multiple regression analysis based on combined data. The findings showed that the companies whose heads of the audit committee possess financial expertise are more likely to choose the Audit Organization or audit institutions with quality control ‘A’ as their independent auditors. Also, according to the findings, the financial expertise of audit committee heads leads to an increase in audit fees and audit quality. However, this study did not identify a significant relationship between the audit committee chairman's experience with auditor selection and audit fees, but a positive and significant relationship between the audit committee chairman's experience and audit quality was identified. The findings of this study contribute to the literature by documenting that financial expertise and experience of audit committee heads are important for improving the audit process and audit quality.1. IntroductionIn recent years, the significant impact of the audit committee on the effectiveness of the audit process has been confirmed by various researchers (Azizkhani et al., 2023). The chairman of the audit committee is considered the chief executive officer of the audit committee (Ernst & Young, 2013). It is necessary for the chairman of the audit committee, as a leader, to understand the culture of the organization, set clear expectations for the committee members, and consider both management and auditors in their decisions. The chairman of the audit committee, who is more responsible than other members of the committee, plays a vital role in controlling financial reporting and evaluating the effectiveness of the audit committee (Bromilo & Keeler, 2011). The chairman of the audit committee plays a key role in ensuring the quality of financial reports through cooperation with the members of the audit committee, setting the agenda of the committee, communicating with the board of directors, management, and independent auditors, and helping to select the members of the audit committee (Azizkhani et al., 2023). In Iran, the audit committee is one of the basic committees of a company. In 2013, the Securities and Exchange Organization required all listed companies to form an audit committee. This committee is responsible for supervising the work of internal and independent auditors, proposing independent auditors to the general meeting of shareholders for the purpose of appointing, determining the fees, and dismissing independent auditors, reviewing the frequency of audits, receiving audit reports, and ensuring that corrective actions are taken in a timely and correct manner. It is the responsibility of management to address weaknesses and shortcomings, non-compliance with policies, laws, and regulations, and resolve other problems identified by the auditors (Nazari et al., 2019). MethodologyThe present research is a descriptive, correlational study in terms of its applied purpose and the relationship between variables. The data and information used are historical and post-event. The statistical population of this research includes all the companies listed on the Tehran Stock Exchange. The statistical sample of the research comprises all the companies that were active in the stock market from the beginning of 2015 to the end of 2023 and meet the following conditions: 1. Their membership in the Tehran Stock Exchange must have continued throughout the research period. 2. The data needed for the research must have been available to them during the research period. 3. They must not belong to investment, financial mediation, holding, bank, or leasing companies. 4. The end of the financial year for these companies should not have changed during the research period and must coincide with the end of March. Finally, after applying the above conditions, 99 companies (equivalent to 792 company-years) were selected as the statistical sample. To collect the data, the database of Rahavard Novin and the reports published on Codal were used. Research hypotheses were tested based on combined data and using multivariate regression models. ResultIn this study, the effect of financial expertise and the experience of the head of the audit committee on auditor selection, audit fees, and audit quality was investigated. The findings indicate that the heads of the audit committee who possess accounting and financial expertise are more likely to choose a first-rate auditor (The Audit Organization or audit institutions with a quality rating of ‘A’) as an independent auditor. Additionally, audit committee heads with accounting and financial expertise tend to pay higher audit fees and enhance audit quality. These findings are consistent with the results of studies by Azizkhani et al. (2023), Lari Dasht Beyaz et al. (2017), and Ghafaran and Yasman (2018). Therefore, the accounting and financial expertise of the head of the audit committee, as an important and influential factor in the audit process, should receive attention from supervisory and legislative institutions. Due to its significance, it should become a legal requirement for companies listed on the Tehran Stock Exchange. ConclusionAlthough the accounting and financial expertise of the head of the audit committee was identified as an influencing factor in the selection of the auditor and the audit fee, the results of this study showed that the greater experience of the heads of the audit committee does not lead to the selection of a first-class independent auditor and does not significantly affect the audit fee. This finding is not compatible with the results of the studies by Elsayani et al. (2023) and Lari Dasht Beyaz et al. (2017). However, the findings indicate that the greater experience of the heads of the audit committee increases the quality of the audit, which is consistent with the findings of the study by Azizkhani et al (2023). These results indicate that the accounting and financial expertise of the head of the audit committee, as an internationally proven factor, demonstrates the expected performance in companies listed on the Tehran Stock Exchange. However, the experience of the head of the audit committee is not as effective as accounting and financial expertise. In this regard, it may be possible to attribute the weak role of audit committee heads in the selection of auditors and audit fees in our country as a reason for this lack of influence. It is expected that with the passage of time and future legal and regulatory reforms, audit committees will become more efficient and effective, and their heads will play a greater role in improving the audit process.
Audit Quality
Mahdi Saghafi; Azam Pouryousof; Ali Shirzadi
Abstract
In this research, the relationship between the discovery of audit distortions and the readability of financial reports has been investigated, as well as the moderating effect of management ability on this relationship. This research is practical in terms of its purpose, and the correlation method is ...
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In this research, the relationship between the discovery of audit distortions and the readability of financial reports has been investigated, as well as the moderating effect of management ability on this relationship. This research is practical in terms of its purpose, and the correlation method is causal (post-event). In this research, the data of 129 companies listed on the Iran Stock Exchange during a seven-year period (from 2015 to 2021) were gathered to test the hypotheses using panel data. The collection of information in this study was done using library methods. Related data to measure the variables were collected from the Codal website and financial statements of the companies. Basic calculations were done in Excel. Then, Stata software was used to test the research hypotheses. The results of the research show that the discovery of audit distortions has a direct and significant effect on the readability of financial reports. Additionally, the results indicate that the ability of managers can not only moderate the positive relationship between the discovery of audit distortions and the readability of financial reports, but also increase the intensity of this relationship.IntroductionA significant part of the companies' information is presented through the annual reports. A clear presentation of this amount of information is important for the clear understanding and interpretation of the information in the financial statements. There is a possibility that company managers change the readability of financial reports in order to attract the attention of investors, and control the perceptions of information users. The possibility of managers exploiting loopholes in accepted accounting principles and standards for personal gain necessitates a thorough evaluation and review by auditors. This evaluation aims to identify potential opportunities for fraud and weaknesses in these principles and standards for rectification. In this way, auditors can play an important role in making financial reports more readable through the quality of the audit. At the same time, the motivation and ability of managers to apply personal interests can also be an obstacle to high-quality auditing. Therefore, the purpose of this research is to examine the effect of audit quality on the readability of financial reports and to investigate how managers' ability can influence this relationship.Research Question(s):Does audit quality have a significant effect on the readability of financial reports?Can managers' ability moderate the relationship between audit quality and readability of financial reports?Literature ReviewBlanco et al. (2021) stated in their research that when annual reports are less readable, auditors spend more effort on auditing financial statements. Furthermore, Hassan (2017) indicated that companies with capable managers publish more readable financial reports. Ghanizadeh et al. (2021) also concluded that financial knowledge and ability of managers have a positive and significant effect on audit quality.MethodologyThe data needed for the research were collected through Rahvard Navin software and Codal website, as well as from the audited financial statements of the companies and their audit reports. The statistical population of the research consists of the companies listed on the Iran Stock Exchange. Thus, 129 companies were selected from the statistical population over seven years (903 observations) from those active between 2015 and 2021, after applying restrictions.ResultsThe findings of the research show that the increase in sensitivity of the auditors in their proceedings, which has led to the discovery of more and more accounting distortions and finally the improvement of audit quality, has led to effective communication with managers in choosing simple words and phrases. This results in an increase in the use of simple language and a reduction in the complexity of financial report content, thereby enhancing the readability of financial reports. Additionally, the ability of managers can not only moderate the positive relationship between audit quality and the readability of financial reports, but also increase the intensity of this relationship.DiscussionThe readability of managers' explanatory reports is crucial for influencing information users. However, the absence of a universal standard for reading such reports presents management with numerous choices regarding content and even formatting. It is possible for managers to mislead the users of information when choosing the right decision by manipulating the readability of financial reports. This issue underscores the essential role of auditors, given its financial consequences and the potential for economic crises. Auditors play a crucial role in enhancing the quality of financial reports and mitigating opportunistic motives of managers. As the CEO is a key figure in the company's economy with significant influence, they can impact the company's value and profitability through their presentation of news and reports. Therefore, audit quality as one of the most important factors in the implementation of audit operations in audit institutions should be considered, so that the mission of auditing, which is ensuring financial statements, is carried out at the highest level of confidence. However, in situations where managers possess high abilities, there is a possibility of adjusting and being affected by this relationship. In this situation, there is a contradiction regarding the managers' ability to provide clear or complex reports and the quality of the audit. This issue originated from theories such as representation and stakeholders. Therefore, the moderating effect of managers' ability on the relationship between audit quality and readability of financial reports is important. In other words, capable managers in different situations send a positive sign of the company's status to the market by providing clear information and thus reduce agency costs. Thus, these managers have a greater ability to clearly express information to the market, which helps create a competitive advantage, maintain reputation, and foster self-motivation.ConclusionIn general, the results of this research indicate that the quality of auditing has improved, and the ability of managers plays a crucial role in enhancing the quality and transparency of financial reports. Therefore, it can be said that audit quality is an important and influential variable in ensuring financial statements and gaining the trust of information users. Additionally, capable managers demonstrate a greater inclination towards information transparency due to their superior performance.
Financial audit
AliAkbar Javan; jafar babajani; mohamad marfo; Farokh Barzideh
Abstract
In this study, by using the Fuzzy Delphi research methodology and getting the expert opinions, it was tried to identify indicators for improving audit quality approved by experts in order to design a suitable model for the Economy of IRAN by utilizing a confirmatory factor analysis model. Also in this ...
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In this study, by using the Fuzzy Delphi research methodology and getting the expert opinions, it was tried to identify indicators for improving audit quality approved by experts in order to design a suitable model for the Economy of IRAN by utilizing a confirmatory factor analysis model. Also in this research, the gap between current and desired situation of audit quality indicators in IRAN is investigated. Finally, the dimensions of audit quality are ranked in terms of importance. For this purpose, following the International Auditing and Assurance Standards Board, 60 indicators were identified. These indicators were classified in five dimensions: a. Input factors with 21 indicators; B. Process factors with 10 indicators; C. Output factors with 9 indicators; D. Key interactions with 10 indicators; and E. Contextual factors by 10 indicators. Data were analyzed by utilizing R, Amos and Super Decisions software. The findings indicate that 54 indicators have been adopted, which provide a model for improving the Audit Quality. Also the results of comparing the current and desired situation of audit quality improvement indicators shows a significant difference between the current situation of the audit quality and the desired environment in Iran. Finally, the results of ranking the dimensions affecting the improvement of audit quality Shows that process factors are in the first place of importance from the point of view of experts, input factors are in the second place, main interactions and contextual factors are both in the third place and output factors are in the fourth place. IntroductionThe accuracy of the operation of each component of the financial reporting supply chain leads to higher-quality financial reporting. One of the most important components of this chain is external audits that, by considering the public interests, assure that the financial information presented in financial reports is fair and reliable (IAASB, 2011; Royaei et al., 2015; Imani Barandagh, Mehrani and Hojjat Shamami, 2016). Therefore, the international auditing and assurance standards board (IAASB), using a holistic approach, published a framework for audit quality in which the main factors contributing to audit quality are introduced. Researchers in different countries, including Iran, are expected to pay attention to the indicators suggested by the IAASB and adjust these indicators according to the context in which audit firms operate to help those involved in the financial reporting supply chain, especially auditors, to improve audit quality.Thus, conducting a study aimed at developing a model for audit quality improvement in Iran, considering the indicators suggested by the IAASB to improve audit quality and enhance the position of the auditing profession in Iran.Research Question(s)The present study can answer this question: What is the audit quality improvement model in Iran?Literature Review2.1. Audit quality definition:There is still no comprehensive, worldwide, and consensual definition, and thus, audit quality can be introduced as a complex and multidimensional concept (Mashayekhi et al., 2013; Alavi and Vakili Fard, 2021) that cannot be limited to a simple definition and the opinions of all those involved in the financial reporting supply chain should be taken into account (Bonner, 2008; Knechel et al., 2012; IAASB, 2014; Mohammadrezaei et al., 2019).2.2. Efforts to improve audit quality:Financial crises in recent decades have called into question the auditing profession and audit quality. Therefore, Policymakers have made attempts to identify key indicators of audit quality. As a more considerable step, in 2014, the IAASB developed a framework for audit quality in which the main factors contributing to audit quality were introduced. The IAASB has introduced the main factors contributing to audit quality in this framework and believes that following the framework in the economic environment of each country can lead to high-quality audits and improve the position of the auditing profession in society.MethodologyThe present study is applied research in terms of purpose and descriptive survey in terms of the data collection method. The purpose of this study is to identify the indicators of audit quality improvement in Iran and develop a model for audit quality improvement. To this end, the fuzzy Delphi method and the confirmatory factor analysis (CFA) technique are employed.3.1. Statistical population and sampling methodThe statistical population of this study comprises audit experts (the partners and senior managers of audit firms that are a member of the IACPA and Iran audit organization). The expert panel members were selected using the purposive sampling technique and 80 questionnaires were distributed among the audit experts, and finally, 58 questionnaires were collected to analyze the data.Results4.1. The importance level of the research indicators based on experts’ opinions (the results obtained from the fuzzy Delphi method)According to the obtained results, no indicator is removed, and all the indicators play a role in improving audit quality in Iran and are confirmed by experts. 4.2. Audit quality improvement modelIn the next step, the CFA technique was used to extract the research final model. To this end, first, the first-order one-factor CFA model related to audit quality improvement was fitted, and after removing items with factor loadings less than 0.5, 54 indicators remained. The final research model, which is a model for improving audit quality in the economic environment of Iran, was formed as described in Figure 2. Discussion and ConclusionThis study, using the fuzzy Delphi method and obtaining the opinions of 58 experts, seeks to identify audit quality improvement indicators and design a model suitable for the economic environment of Iran. To this end, based on the theoretical framework, 60 indicators were collected and categorized into five dimensions: a) input factors with 21 indicators, b) process factors with 10 indicators, c) output factors with 9 indicators, d) key interactions within the financial reporting supply chain with 10 indicators, and e) contextual factors with 10 indicators. The results show that 54 out of 60 indicators in five separate dimensions are accepted, which represent the model for audit quality improvement in the economic environment of Iran according to experts’ opinions as described in the aforementioned model (Figure 2).
Financial audit
Mohammad Hassanjani Khoshkroudi; Iman Dadashi; Bahram Mohseni maleki rastaghi; Hamidreza Gholamnia roshan
Abstract
The aim of this study is to develop a comprehensive model that identifies the non-fragile variables affecting the quality of tax audit. We analyzed 511 tax files from Mazandaran province in the period spanning 2012 and 2021. Initially, through interviews with experts and literature, 64 factors affecting ...
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The aim of this study is to develop a comprehensive model that identifies the non-fragile variables affecting the quality of tax audit. We analyzed 511 tax files from Mazandaran province in the period spanning 2012 and 2021. Initially, through interviews with experts and literature, 64 factors affecting the quality of tax audits were identified. These factors were categorized into three groups: characteristics of taxpayers, tax auditors, and macro factors. Subsequently, the relevant data were applied to Bayesian Model Averaging (BMA), Time-Varying Parameter Dynamic Model Averaging (TVP- DMA), and the Time-Varying Parameter Dynamic Model Selection (TVP-DMS) models. Among these, the BMA model demonstrated the highest accuracy based on the error rate. After model estimation, 17 main indicators were identified as influential variables in three areas. In the realm of tax auditors, these included the quality of past period tax audits, work experience, individual or group handling of audits, auditor expertise, auditors’ use of information, auditor’s workload, conducting audits across multiple tax sources, interactions with related parties, the presence of unofficial invoices, and the use of others’ business cards. In terms of intra-company variables, accrued earning management and debt ratio were identified. Finally, macroeconomic variables impacting the quality of tax audits were found to be inflation, unofficial exchange rates, tax complexity, tax fairness, the business environment index, and the social capital index. IntroductionFactors affecting the quality of tax auditors can be divided into three groups: characteristics of taxpayers, tax auditors, and macro factors. The current challenge in evaluating factors that determine the quality of tax auditors lies in the diversity of theories and the absence of a specific, universally accepted model. On one hand, the multitude of potential explanatory variables affects the quality of tax auditors. On the other hand, this abundance makes the use of classical econometric models problematic. One method to address the uncertainty in selecting variables and choosing the appropriate model is to employ conventional techniques in Bayesian econometrics. These include Bayesian Model Averaging (BMA), Bayesian Maximum Likelihood Averaging Model (BML), Time-Varying Parameter Dynamic Model Averaging (TVP-DMA), and Time-Varying Parameter Dynamic Model Selection (TVP-DMS). Little research has been conducted in the field of tax audit quality. Furthermore, to date, there has been no research that attempts to model this index using non-linear Bayesian approaches and time-varying parameters simultaneously; such an approach has not yet been adopted. Literature ReviewThe lack of tax revenue and non-payment of taxes pose significant challenges to the development of countries. In recent years, the tax gap has widened in both developing and developed countries. The tax gap is defined as the difference between the taxes that are legally owed and the amount of tax actually collected. Non-compliance with tax laws by both taxpayers and tax officials is a fundamental issue in emerging and developing economies. Tax audit is one of the methods employed to achieve the necessary compliance with tax laws (Aia et al., 2016). Combating tax evasion is a fundamental objective of all global tax systems, for which there are generally two basic strategies. One strategy is the establishment and enhancement of reliable self-assessment systems, and the second is the implementation of risk-based tax audits (Dehghani Doyle, 2019). Therefore, the primary objective of this study is to develop a model aimed at enhancing the quality of tax audits. MethodologyThe research focuses on the tax files of all taxpayers, both individuals and legal entities, which have been audited by the Mazandaran province tax organization between 2010 and 2021. The sample comprises information extracted from tax files of taxpayers with files valued at 10 billion Rials and above. This threshold of 10 billion Rials was set to exclude small taxpayers, who generally do not have a substantial information burden, thus focusing on a more specific level of taxpayers. Following interviews with experts from the tax organization and university professors, and a review of past research, a total of 64 factors influencing the quality of tax audits were identified. These factors were categorized into three main groups: macro variables, characteristics of taxpayers, and characteristics of tax auditors. BMA approach has been used in this research. ResultsFrom the viewpoint of tax audit service providers, establishing strategies to enhance the quality of tax audits is essential. This includes creating and reinforcing facilities systematically, conducting joint and integrated audits, and defining mechanisms to ensure auditors' independence. To effectively implement these strategies, it is crucial to consider the various dimensions of factors that affect the quality of tax audits. To achieve this objective, information on the indicators of the 64 factors affecting the quality of tax audits was input into three models: BMA, TVP-DMA and TVP-DMS. Based on the error rate, the BMA model demonstrated the highest level of accuracy. Following the model estimation, 17 main variables were identified. These variables include: the quality of tax audit of the past period, job experience, whether the case should be handled individually or as a group, auditor expertise, the extent of auditors’ use of received information, auditor’s work pressure, transactions with related parties, the presence of unofficial invoices, using other people’s business cards, accrued profit management, debt ratio, inflation, unofficial exchange rate, tax complexity, tax fairness, business climate index, and social capital index.Based on the results of the research, the following suggestions are proposed:Mechanization of all tax audit processes.Establishing an integrated system of a smart database of circulars, instructions, and regulations.Implementing measures and efforts to provide all tax auditors with access to the financial and economic microdata of taxpayers.Development and implementation of integrated tax audit software across all sources.Emphasizing the quality and substance of the content in issued tax audit reports. DiscussionThe identified variables are divided into three main categories: tax auditor variables (the quality of tax audit of the past period, job experience, whether the case should be handled individually or as a group, auditor expertise, the extent of auditors’ use of received information, auditor’s work pressure, transactions with related parties, the presence of unofficial invoices, using other people’s business cards), Internal variables (accrued profit management; debt ratio), and macroeconomic variables (inflation, unofficial exchange rate, tax complexity, tax fairness, business climate index and social capital index). ConclusionGiven the scarcity of comprehensive research in the field of tax audit quality, a multifaceted model has been designed to address this gap. It provides a comprehensive perspective on the quality of tax audit. Focusing on all dimensions of tax audit quality fosters the development of a systemic perspective in this field. Expanding the systemic perspective is expected to enhance the efficiency of the tax audit system. This improvement in efficiency can lead to more effective tax collection across different economic sectors, ultimately contributing to broader economic development.
Accounting report
Masoumeh Shahsavari; Mohammad Reza Abbaszadeh; Hamze hesari
Abstract
In the present study, the relationship between the qualitative information of the auditor's report and the quality of accounting has been discussed. In particular, the relationship between the tone of the auditor's report and the audit fee (audit quality criterion based on the input of the audit process) ...
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In the present study, the relationship between the qualitative information of the auditor's report and the quality of accounting has been discussed. In particular, the relationship between the tone of the auditor's report and the audit fee (audit quality criterion based on the input of the audit process) has been examined with respect to the concepts of risk, client business risk, and litigation risk. To test the research hypotheses, 360-year-firms data of Iranian Stock Exchange were used during a period of 6-years, three years before and three years after the revision of Auditing Standard No. 700. Textual data were analyzed using Maxqda10 text analysis software and after quantification along with other quantitative data were analyzed using multivariate linear regression in Ives software and SPSS Eviews 9. The results indicate a weak inverse relationship between the optimistic tone and the audit fee variable. In addition, the findings showed that the acceptance of the requirements of Auditing Standard No. 700 does not make significant changes in the relationship between the tone of the auditor's report and the remuneration compared to the period before the review. In general, the results of the research indicate evidence of the predominance of the signaling effect (albeit poorly) in the sample.
Seyed Ali Hosseini; Zahra Masoumi Bilondi
Abstract
The recent welcome of companies to capital increases from revaluations has highlighted the role of experts, and increasing trust on the work of experts has led to concerns about audit quality. The aim of this study is to identify the challenges and barriers to using expertise services in auditing and ...
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The recent welcome of companies to capital increases from revaluations has highlighted the role of experts, and increasing trust on the work of experts has led to concerns about audit quality. The aim of this study is to identify the challenges and barriers to using expertise services in auditing and ways to improve it. The research is qualitative and the data were collected through interviews with 17 auditors and Official Experts of Justice official and analyzed by theme analysis.According to the research findings, weakness of supervision, Lack of expert independence , limitations, structural inefficiency, reluctance of the auditor, non-compliance with the auditor's professional ethics, economic environment and communication problems and coordination of challenges and barriers to using expertise services were identified and rules and regulations improvement, strengthening infrastructure and promoting and developing expertise services, strategies to improve the use of expert services were identified. The results of the research can be useful in order to achieve effective use of experts in the audit process and as a result higher audit quality.
Accounting and various aspects of finance
Erfan Mohammadi; hamideh Esnaashari
Abstract
The risk of stock price crash is one of the topics of interest in capital market research. Since the main mission of capital market regulators is to protect the rights of investors, it has always been important to consider the factors that affect crash risk. The quality of financial reporting and earnings ...
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The risk of stock price crash is one of the topics of interest in capital market research. Since the main mission of capital market regulators is to protect the rights of investors, it has always been important to consider the factors that affect crash risk. The quality of financial reporting and earnings management patterns are the most important tools available to regulators that can help them manage crash risk aversion, which is why this study addressed them. Earning management patterns include earnings management through accruals and real earnings management. The statistical population of this study is the companies listed on the Tehran Stock Exchange and the research sample was selected in terms of some features (including 167 companies) for the period 2012 to 2018. The research method of the present study is descriptive- correlation and the research hypotheses are tested using the generalized least squares method. The results show that the accrued earnings management model is related to stock crash risk and the use of earnings management through accruals increases the risk of stock price falls. While this is not the case with earnings management through real activities, the application of this earnings management model has nothing to do with the negative changes in stock returns. In addition, audit quality weakens the relationship between accrued earnings management pattern and stock crash risk. While the relationship between real earnings management pattern and stock crash risk is not affected by audit quality
Accounting report
Navid Reza Namazi; Pedram Azizi
Abstract
The purpose of this study is to investigate the moderating effect of auditing quality on the relationship between financial reporting quality and initial public offerings (IPOs) underpricing of stocks. The population of this study is the companies listed on the Tehran Stock Exchange (TSE) and OTC of ...
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The purpose of this study is to investigate the moderating effect of auditing quality on the relationship between financial reporting quality and initial public offerings (IPOs) underpricing of stocks. The population of this study is the companies listed on the Tehran Stock Exchange (TSE) and OTC of Iran. The statistical sample consists of 230 companies in the period of 18 years, from 2001 to 2019. The results showed that on average, 25% of the initial public offering underpricing of stocks occurs in the Iranian capital market. In addition, the findings of the regression analysis using the E views software indicated that the financial reporting quality has a negative and significant effect on the initial public offerings underpricing of stocks. In other words, the high financial reporting quality prevents the initial public offering underpricing. It was also found that audit quality (in terms of the type of auditor's opinions) enhances the relationship between financial reporting quality and the initial public offerings underpricing of stocks. However, the size of the audit firm and the auditor's tenure do not moderate the relationship.
Mohammad Hossein Safarzadeh; Abbas Hooshmand
Abstract
The purpose of this study is to investigate the relationship between auditors' characteristics and their business and professional orientations. The impact of these professional and business orientations is also examined on actions that lead to lower quality of audit services. Using the questionnaire, ...
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The purpose of this study is to investigate the relationship between auditors' characteristics and their business and professional orientations. The impact of these professional and business orientations is also examined on actions that lead to lower quality of audit services. Using the questionnaire, the required data were collected from 283 certified accountants. The results show that among the characteristics of auditors, the level of knowledge and awareness, degree of adaptation and communication skills of auditors have a positive and significant relationship with their professional orientation, but marketing skills has a negative relationship with professional orientation. While creativity and innovation had no significant relationship with professional orientation. On the other hand, the auditors' marketing and communication skills have a positive and significant relationship with their business orientation. However, the level of knowledge and awareness, compatibility and creativity of auditors has no significant relationship with business orientation. Finally, professional orientation was found to decrease actions to reduce audit quality, whereas the business orientation exacerbated it. Therefore, it should be noted that auditors' business orientation may adversely affect the quality of their audits, so adopting appropriate mechanisms in this regard seems necessary.
Mehdi Baharmoghaddam; Hossein jokar
Abstract
Several studies in Tehran Stock Exchange have examined the effect of audit quality on investment decisions in the market, but toward most of these studies are based solely on the principle of rationality of economic agents and documentation of the relationship between audit quality and stock price and ...
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Several studies in Tehran Stock Exchange have examined the effect of audit quality on investment decisions in the market, but toward most of these studies are based solely on the principle of rationality of economic agents and documentation of the relationship between audit quality and stock price and the direct reaction of the market to the audit quality criteria are indicative of the effect of audits on the investors' decisions and rarely examine the role of independent auditors on the emotional behaviors investors in the market. So, this paper the main purpose is investigating the effect of moderating audit quality on investor sentiment in stock pricing. In this study, to measure the audit quality, it has been used the observable variables such as the type of audit opinion, audit size and investor sentiment was measured by using five criteria of microeconomic and two macroeconomic criteria. For this purpose, sample of 560 years-company, during the years 2009-2016 was investigated using modified multivariate regression. The results show that the auditor's reports strengthens investor confidence to accounting information and affect the investors' sentiment in stock pricing, but the size of the auditor is not moderating and has no effect on the investors' sentiment in the capital market.
Hasan Zalghi; Amin Amir Bakhtiarvand
Volume 14, Issue 53 , April 2017, , Pages 173-198
Abstract
In this study, the effect of audit quality on the forecasting accuracy of futureoperating cash flows of firms listed in the Tehran Stock Exchange has beeninvestigated. Audit quality has been measured with auditor size, auditorindustry specialization and auditor tenure. Similar to some previousresearches ...
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In this study, the effect of audit quality on the forecasting accuracy of futureoperating cash flows of firms listed in the Tehran Stock Exchange has beeninvestigated. Audit quality has been measured with auditor size, auditorindustry specialization and auditor tenure. Similar to some previousresearches done in this outline, forecasting accuracy of future operating cashflows have been estimated with using model Barth et al (2001). The resultsof review firms 97 in the years 2007 to 2014 show that size of audit firm andauditor industry specialization have significant positive relationship at theforecasting accuracy of future operating cash flows, and increase forecastingaccuracy. while there is a significant negative relationship betweenforecasting accuracy of future operating cash flows and auditor tenure. Thesefindings suggest that audit quality can influence the quality of accountinginformation and therefore effected over forecasting accuracy of futureoperating cash flows.
hassan zalaghi; Amin Amir Bakhtiarvand; saied Ebrahimzadeh
Abstract
In this study, the effect of audit quality on the forecasting accuracy of future operating cash flows among between firms listed in the Tehran Stock Exchange has been investigated. Audit quality has been measured with auditor size, auditor industry specialization and auditor tenure.Similar to some previous ...
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In this study, the effect of audit quality on the forecasting accuracy of future operating cash flows among between firms listed in the Tehran Stock Exchange has been investigated. Audit quality has been measured with auditor size, auditor industry specialization and auditor tenure.Similar to some previous researches done in this outline, forecasting accuracy of future operating cash flows have been estimated with using model Barth et al (2001). The results of review firms 97 in the years 2007 to 2014 show that size of audit firm and auditor industry specialization have significant positive relationship at the forecasting accuracy of future operating cash flows, so caused increase its .while there is a significant negative relationship between forecasting accuracy of future operating cash flows and auditor tenure. These findings suggest that audit quality can influence the quality of accounting information and therefore it is effected over forecasting accuracy of future operating cash flows.
Nezamoddin Rahimian; Mohammad Taghi Taghavifard; Sepideh Javadi Sofiani
Abstract
The main role of financial reporting is the effective transfer of financial information to people outside of the organization in a valid way while being ontime. This way, managers have the opportunity to judge the financial reports. This study aimed to investigate the impact of audit quality incentives ...
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The main role of financial reporting is the effective transfer of financial information to people outside of the organization in a valid way while being ontime. This way, managers have the opportunity to judge the financial reports. This study aimed to investigate the impact of audit quality incentives associated with the change of accruals in companies with high equity valuations. For this purpose, the performance of 184 companies, as a sample, during the time period of 2009-2013 was studied. In this study, the ratio of market price to earnings before extraordinary items and discontinued operations as an excess stock value measure has been used. Also, to analyze the impact of excess stock valuation on real earnings management, multivariate regression analysis considering panel data was used. The results of first hypothesis testing show that there is no significant relation between the size of audit firm and discretionary accruals. However,the results of second hypothesis testing indicate that there is a significant relationship between auditor’s tenure and optional accrual items in companies with high equity valuation. Also, the management motivation to change accruals in companies with high equity valuation is reduced.
Navid Paidarmanesh; Mahdi Salehi; Matina Khorami Kakhki; Mahdi Moradi
Abstract
According to the agency theory, signaling theory, Stakeholder theory, asymmetry information theory and proof of the users of financial statements need to this information and its confirm by independent auditor, therefore we study the relationship between independent audit quality and disclosure quality ...
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According to the agency theory, signaling theory, Stakeholder theory, asymmetry information theory and proof of the users of financial statements need to this information and its confirm by independent auditor, therefore we study the relationship between independent audit quality and disclosure quality of financial statement In this research. The study covers a period from 2009 to 2013 for companies in the Stock Exchange of Tehran. Audit quality is the independent variable in this research that measured by auditor industry specialization, auditor tenure, reputation and quality of audit firm, antiquity and experience of auditor and audit fees. And disclosure quality is dependent variable that measured by given annually point to companies. We use the R software for analyze the model. This study has six hypothesis for each of six independent variables. According to the statically results for research model, all of the six hypothesis rejected and we find that there is no significant relationship between each of independent variables and disclosure quality. According to rejection of all of the hypothesis, we conclude that there is no relationship between independent audit quality and disclosure quality of financial statement Tehran Stock Exchange companies.
Mohammad Ali Bagherpour Velashani; Hossein Etemadi; Mahdi Omidfar
Abstract
The purpose of this research is to examine the relationship between thecorporate governance characteristics and accounting restatements due torapid growth of restatements in the world as well as the Iranian capitalmarket. Researchers believe that restatement is a sign of low quality offinancial reporting ...
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The purpose of this research is to examine the relationship between thecorporate governance characteristics and accounting restatements due torapid growth of restatements in the world as well as the Iranian capitalmarket. Researchers believe that restatement is a sign of low quality offinancial reporting by the companies. For doing so, similar to prior studiesand by consideration of the Iranian context a set of different corporategovernance characteristics including power of CEO, CEO changes, blockholders, largest shareholder, auditor type, auditor industry specialization,auditor changes, and finally capital structure are considered. In addition, tocontrol the possible effects of other factors, which could potentially affectfirms'''' restatement decisions, 10 new variables were added to the model.These control variables include return on assets, sales growth, operating cashflow, liquidity ratio, prior year performance, equity financing, debtfinancing, firm size, year, and industry type. The final research sampleincludes 999 observations of the Tehran Stock Exchange (TSE) listedcompanies for the period 2004-2009. The results indicate that CEO changes,auditor changes, auditor industry specialization, auditor size and largestshareholder as well as some financial characteristics such as operating cashflows ratio, liquidity ratio, and firm size are associated with the restatementsof the accounting income. Therefore, the findings support the hypothesis thatcorporate governance mechanisms can improve the quality of financialreporting.
Naser Izadiniya; Naser Izadiniya
Volume 12, Issue 45 , April 2015, , Pages 31-80
Abstract
In this study ,the impact of highly valued equity on the relationbetween audit quality and Discretionary Accruals in the companieslisted in Tehran Stock Exchange is investigated .Audit quality ismeasured by using of the audit firm size, audit industry specialization,the length of the auditor-client relationship ...
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In this study ,the impact of highly valued equity on the relationbetween audit quality and Discretionary Accruals in the companieslisted in Tehran Stock Exchange is investigated .Audit quality ismeasured by using of the audit firm size, audit industry specialization,the length of the auditor-client relationship and industry specialistaudit firms with long tenure. Also, Discretionary Accruals is estimatedusing the Jones model (1991). The results of investigating a sample of153 firms during the years of 1386 to 1392 shows that interactioneffect of highly valued equity and audit quality proxies is positive andsignificant. This means that, magnitude of the negative effect of auditquality on the discretionary accruals in the highly valued firmsdecreases and high quality auditors not reducing amount ofDiscretionary Accruals in highly valued firms. Thus, in thenegotiation between auditors and managers about preparation offinancial statement in the highly valued equity, managers by using ofbetter information about its firm can success on auditors.
mehdi nirzaie; naser izadinya
Abstract
In this study ,the impact of highly valued equity on the relation between audit quality and Discretionary Accruals in the companies listed in Tehran Stock Exchange is investigated .Audit quality is measured by using of the audit firm size, audit industry specialization, the length of the auditor-client ...
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In this study ,the impact of highly valued equity on the relation between audit quality and Discretionary Accruals in the companies listed in Tehran Stock Exchange is investigated .Audit quality is measured by using of the audit firm size, audit industry specialization, the length of the auditor-client relationship and industry specialist audit firms with long tenure. Also, Discretionary Accruals is estimated using the Jones model (1991). The results of investigating a sample of 153 firms during the years of 1386 to 1392 shows that interaction effect of highly valued equity and audit quality proxies is positive and significant. This means that, magnitude of the negative effect of audit quality on the discretionary accruals in the highly valued firms decreases and high quality auditors not reducing amount of Discretionary Accruals in highly valued firms. Thus, in the negotiation between auditors and managers about preparation of financial statement in the highly valued equity, managers by using of better information about its firm can success on auditors.
Javad Rezazadeh; Kamal Zareie Moravvej
Volume 5, Issue 20 , January 2008, , Pages 89-105
Abstract
The purpose of this study is examining the impact of worldwide known factors on auditor changes in Iranian corporations. For the study, the population of interest comprises all companies listed on the Tehran Stock Exchange (TSE). The sample comprises 37 auditor-change TSE companies and 37 non-auditor-change ...
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The purpose of this study is examining the impact of worldwide known factors on auditor changes in Iranian corporations. For the study, the population of interest comprises all companies listed on the Tehran Stock Exchange (TSE). The sample comprises 37 auditor-change TSE companies and 37 non-auditor-change TSE companies. Logistic analysis is performed on the sample data. The findings indicate that audit fee, audit quality, change in management composition, and firm size are significantly influencing variables on auditor changes. Logistic multivariate analysis indicate that factors such as audit fee, audit opinion, change in management composition, and firm size can be used to establish a model to predict auditor changes.
