Financial audit
Farzaneh Pourmahdi Borujeni; Bahareh Banitalebi Dehkordi; Hamid Reza Jafari Dehkordi
Abstract
The purpose of this based on two analytical bases, in the first place, is to identify the areas of hegemonic powerism spread in audit institutions to provide a paradigmatic theoretical framework and in the second place, the evaluation of the results of the phenomenon of hegemonic powerism in the structure ...
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The purpose of this based on two analytical bases, in the first place, is to identify the areas of hegemonic powerism spread in audit institutions to provide a paradigmatic theoretical framework and in the second place, the evaluation of the results of the phenomenon of hegemonic powerism in the structure of audit institutions is to determine the most central result that reduces the quality of auditors' working life. The methodology of this qualitative study is based on inductive philosophy. It is considered exploratory in terms of purpose and developmental in terms of result. The data collection tool was interview and the participants of this study were experts in accounting knowledge at the university level. The results of the qualitative phase of the study during 13 interviews show the identification of 426 open codes, 46 themes, 14 components (axis) and 8 main categories in the process of ground theory. The results of the quantitative phase of the study also showed that the most central outcome arising from the spread of hegemonic authoritarianism in audit institutions is the emergence of work-family conflicts among auditors. This is a telling result of the problem that the spread of the dominant hegemonic powerism in audit institutions leads the way of interaction of partners with auditors strongly towards conflict and with the reduction of job motivations, which can affect the quality of auditors' professional life.
Financial audit
Alireza Saadati; Negar Khosravipour; Mohammad Ali Bidari
Abstract
The purpose of research is contextualizing the strategic thinking of auditors' bricolage functions in controlling the occurrence of auditing profession pressure spillover disorders. This study is considered a hybrid in terms of methodology, because it seeks to achieve the research goals based on a set ...
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The purpose of research is contextualizing the strategic thinking of auditors' bricolage functions in controlling the occurrence of auditing profession pressure spillover disorders. This study is considered a hybrid in terms of methodology, because it seeks to achieve the research goals based on a set of qualitative and quantitative analysis methods. Therefore through the processes of the qualitative part, it was first attempted to identify the functional areas of the auditors' bricolage strategic thinking and the disorders caused by the pressures of the auditing profession, based on two grand theory analyzes and systematic content screening after implementing the fuzzy Delphi analysis process and verifying the reliability of the identified dimensions, it is possible to expand them to the study platform. Then, in the quantitative part of the study, an attempt was made to evaluate the criteria identified in the auditing profession through the gray Vicor matrix. The findings of the study in the qualitative part indicate the identification of 36 conceptual themes, 6 core components and 3 categories for the variables of auditors' bricolage strategic thinking functions and the identification of 5 disorders caused by the pressures of the auditing profession. In the following, with the aim of combining these variables in the form of implementing the process of Gray Vicor analysis, the results showed by improving the level of efficiency of the auditor's negotiation fields based on the development of bricolage strategic thinking in auditors, it can be expected that the conflict caused by tolerance with the employer
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.
Financial audit
Mohammad Amri Asrami; Seyed Kazem Ebrahimi; Hossein Amini
Abstract
Compliance with social and environmental responsibilities is one of the requirements of the current competitive era, and the competitive pressure on companies in this situation imposes costs that can affect financial performance. This research investigates the moderating role of competitive strength ...
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Compliance with social and environmental responsibilities is one of the requirements of the current competitive era, and the competitive pressure on companies in this situation imposes costs that can affect financial performance. This research investigates the moderating role of competitive strength in the relationship between social and environmental responsibilities and financial performance. The statistical sample for this research consists of companies listed on the Tehran Stock Exchange between 2016 and 2021. Using a regular screening method, 108 companies were selected as samples. After checking the classical assumptions of regression, the panel data model with fixed effects was used. The results showed that social performance has a positive relationship with financial performance. Competitive strength has a negative moderating effect on the relationship between social performance and financial performance. Environmental performance also has a positive relationship with financial performance, and competitive strength has a negative moderating role in this relationship. According to the coefficients of the variables, the social dimension of the company is more effective in increasing performance than the environmental dimension.
Introduction
A balance must be established between the modernization process and social and environmental concerns. Additionally, society's expectations regarding moral, legal, economic, and public interests require companies to commit to the communities in which they operate (Porter & Kramer, 2011). On the other hand, the growing interest of companies, especially large, national, and multinational companies, to demonstrate better environmental and social performance as part of their corporate social responsibility policy is often reflected in their management structures and investment policies. In line with the social responsibility policy, companies invest in the environmental field for three reasons: complying with environmental and social regulations and standards, improving company conditions, creating a favorable image of the company for society, and gaining access to other markets (Zaid et al., 2020).
Social responsibilities have been utilized in various businesses to achieve a competitive advantage and create stable relationships with society. In this regard, the theory of social responsibilities refers to the combined pursuit of economic progress, social equality, and environmental protection. The nature of social responsibilities is the interconnected and mutual realization of financial, social, and environmental goals (Donkor et al., 2023).
A company's environmental responsibility refers to its organizational behavior and commitment to the natural environment, which symbolizes the company's environmental ethics (Dilla et al., 2019). Several studies have shown conflicting results regarding a firm's environmental performance and financial performance. Some previous studies have shown that environmental responsibility improves long-term performance (Arda et al., 2019; Gilal et al., 2019). In addition, green knowledge and innovation promote an environmental orientation that allows companies to improve performance (Atan et al., 2018). On the contrary, since introducing environmental initiatives is costly (Zhang et al., 2019), evidence has shown that corporate environmental responsibility does not always lead to positive results (Chollet & Sandwidi, 2018). Based on a sample of companies listed on the Tehran Stock Exchange, this study examines the role of competitive strength in the relationship between firms’ social and environmental performance and financial performance.
Literature Review
Green theory emphasizes that community care helps organizations in sustainable development. Hence, government regulations and customer pressure encourage companies to adopt such practices in emerging markets. Environmental responsibility allows companies to improve their competitive advantages and dynamic capabilities (Arda et al., 2019). Incorporating environmental values supports environmental business in the long term (Gill et al., 2019). In general, green knowledge and innovation promote an environmental orientation and green resource management in companies, subsequently allowing them to improve their performance (Atan et al., 2018; Zhang et al., 2019). Based on this, this research expects to improve the effectiveness of a company by using organizational resources for environmental performance while simultaneously improving social performance.
Proponents of the positive effects of CSR argue that CSR enhances corporate value and image, as well as develops brand positioning, reputation, and corporate image, which in turn enhances financial performance in the long run (Hill, 2020). It is often assumed that the proper use of economic, social, and governance standards requires higher financial efficiency and performance.
Managers of firms with fewer resources have fewer opportunities to divert resources to their advantage (Kumar et al., 2023). They are more concerned about their presence in the market and maintaining their market share in the industry, and they consider themselves less socially responsible towards the company, market, and society (Jiang et al., 2019). The moderating power of competition encourages companies to act in socially responsible ways and helps maintain their reputation (Chih et al., 2010; Graafland, 2018). The intensity of competition affects decisions related to social responsibilities, including social and environmental performance (Jiang et al., 2019). Different levels of competition affect the relationship between the social and environmental performance of companies. Social practices and environmental ethics are intangible assets for a company in capital markets, and these assets change with shifts in competition levels. In particular, considering the role of competitive strength, the relationship between social performance and environmental performance with financial performance changes as the level of competition fluctuates (Saeed et al., 2023). Therefore, the following hypotheses can be proposed:
Hypothesis 1: There is a positive relationship between social performance and financial performance.
Hypothesis 2: Competitive strength moderates the relationship between social performance and financial performance.
Hypothesis 3: There is a positive relationship between environmental performance and financial performance.
Hypothesis 4: Competitive strength moderates the relationship between environmental performance and financial performance.
Methodology
This research is practical and post-event, conducted using the secondary data collection method. The information from companies was collected by referring to the Codal.ir website and using their financial statements and attached notes. The study period covers 2016 to 2021. Before testing the proposed model and hypotheses, the assumptions of the regression models were checked. The Chow test, Hausman test, and variance heterogeneity test indicated that the panel data model with fixed effects is suitable for the models of this research. In this study, the Breusch-Pagan-Godfrey test was used to check for heteroscedasticity. The results of the heteroscedasticity analysis show that the residuals of the normal regression models do not have constant variance, indicating heteroscedasticity, and the generalized least squares method was used to address this issue.
Results
The variable coefficient of social performance in models 1 and 2 is 0.0092 and 0.019, respectively, and is significant at the 99% confidence level in both models. There is a positive relationship between social performance and financial performance, meaning that compliance with social responsibilities leads to an increase in financial performance. However, in model 2, the moderating variable (strength of competition) reverses the relationship between social performance and financial performance. At the 99% confidence level, the strength of competition has a negative effect on the relationship between social performance and financial performance. The variable coefficient of environmental performance in models 3 and 4 is 0.003 and 0.004, respectively, and is significant at the 95% confidence level. There is a positive relationship between environmental performance and financial performance, indicating that compliance with environmental responsibilities leads to an increase in financial performance. In model 4, the sign of the coefficient for the moderating variable (strength of competition) is positive, meaning that the strength of competition has a positive relationship with financial performance. However, the moderating variable reverses the relationship between environmental performance and financial performance, so at the 99% confidence level, the strength of competition has a negative effect on the relationship between environmental performance and financial performance.
Conclusion
Disclosure of social performance leads to increased financial performance. The disclosure of social performance by the company, as a positive signal to the market and shareholders, directly benefits the improvement of the company’s reputation and value. Additionally, this disclosure can indirectly affect the company’s financial performance through mediators such as competitive advantage, reputation, customer satisfaction, access to capital, and environmental resource efficiency. The company's competitive advantages are one of the important dimensions of market characteristics that company leaders should consider in their efforts to make optimal decisions to maximize financial performance. When there are no competitive pressures, managers may become lax in their duties, leading to poor management and high agency costs.
Disclosure of environmental performance also leads to increased financial performance. Compliance with environmental responsibilities and publication of periodic reports raise awareness and judgment among society and stakeholders, thereby strengthening the company's brand. To ensure that environmental goals are met, environmental functions such as the development of environmental policies and programs, setting quantitative and measurable goals for reducing environmental pollution, implementing pollution prevention obligations, measuring and evaluating potential environmental effects, revising executive plans, and making reforms must be carried out.
Competitive strength has a negative moderating role in the relationship between environmental responsibilities and financial performance. Today, governments support and encourage companies to fulfill social and environmental responsibilities. On the other hand, when facing external pressures, companies rely on government support and try to attract technical and financial incentives to carry out social and environmental responsibilities at a lower cost and more easily. By actively implementing social and environmental responsibilities, companies can communicate with governing bodies and actively participate in the development and approval of environmental responsibility programs. These actions help companies gain external legitimacy and promote their corporate brand. In this way, by taking advantage of these factors, companies can increase profitability while raising product prices and consolidating customer loyalty. Additionally, emphasizing the reduction of physical waste through environmentally friendly solutions can lay the groundwork for reducing costs and increasing profitability.
Audit Risk
Mehdi Eskandari; Seyed Yousef Ahadi Serkani; Seyede Atefe Hosseine
Abstract
The purpose of this research is presenting a pathological framework of teamwork in auditing by matrix ranking process.
The aim of this study is to present a pathological framework of teamwork in auditing using a matrix ranking process. This study employs a mixed-methods and exploratory approach due ...
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The purpose of this research is presenting a pathological framework of teamwork in auditing by matrix ranking process.
The aim of this study is to present a pathological framework of teamwork in auditing using a matrix ranking process. This study employs a mixed-methods and exploratory approach due to the lack of identification of vulnerable areas of teamism in the auditing profession. The grounded theory method was applied to determine the dimensions of the model through fuzzy Delphi analysis. There is a content similarity between the components representing the central field of damage of teamism in the auditing profession and the identified categories. Using the interpretive ranking process, an attempt was made to prioritize the identified axes. The results of this study, based on 12 interviews in the qualitative phase and the model presentation, indicate the existence of 3 categories, 8 components, and 42 conceptual themes. In the second phase of the research, it was also determined that individual perception disorder is the most significant issue that the audit teams face in the process of sharing information and focusing on collaborative methods. This issue can seriously challenge the performance of audit teams.
Introduction
In organizational structures, one of the most important processes for fostering participation and information sharing is developing team orientation to achieve effectiveness. In other words, participation and the creation of synergy are considered key outcomes of team orientation, through which any organization can improve competitive results. However, it is important to note that some professions benefit more from team orientation because the specific characteristics of certain jobs, particularly those involving the sharing of knowledge and experience, can yield greater advantages. Auditing is one of such profession that relies on team orientation due to the specialized knowledge and experience required. Auditing teams are structured according to certain norms designed to improve knowledge sharing and learning.
Literature Review
At the onset of interpersonal communication, the concept of a group was viewed as a collaborative function. This was believed to yield more long-term results compared to individual decision-making, as joint efforts between individuals were thought to provide better solutions to the organization’s challenges. However, with the development of behavioral research in the functional fields of the group, it became evident that, like previous theories, the group offered only proportional efficiency for the organization and did not significantly differ from individual decision-making in terms of effectiveness. In fact, issues within the group, such as power dynamics, fear, and frustration among members, particularly among minority stakeholders, often cause more disruptions in solving organizational problems and could impose significant costs on the organization.
Methodology
The research approach of the present study, in terms of data collection logic, is hybrid in nature. This is because it examines a phenomenon for which no comprehensive framework exists in the theoretical literature of the auditing profession, nor is there a consensus. Therefore, the study begins by analyzing the qualitative data and relying on the data theory method of the foundation, aiming to identify the dimensions of the damages of the audit teams through a multidimensional model. For this purpose, Glaser's (1992) emergent approach is employed to formulate the audit teams' vulnerability framework, utilizing expert interviews conducted in three stages of coding.
Result
Based on the arguments presented in the methodology regarding the lack of a theoretical framework for team orientation vulnerability in the auditing profession, the foundation data theory analysis process, following Glazer's approach, was used as the basis for the qualitative section. In this analysis, a total of 315 open codes were generated from interviews with 12 identified accounting experts. Through a three-stage coding process, 8 components and 4 main categories were identified. To ensure the reliability of the identified dimensions, Fuzzy Delphi analysis was employed. The findings from this analysis confirm all the core areas of the damage of team orientation within the audit profession. Subsequently, to address the research question of determining the most significant central field of damage of team orientation within the auditing profession, the interpretive ranking process was utilized.
Discussion
In analyzing the obtained results, it can be stated that auditors, as members of the audit team, can effectively contribute to improving audit quality when each auditor can individually play a meaningful role in collaboration, due to their level of perceptual knowledge, which stems from behavioral and psychological characteristics, and their ability to share information.
Conclusion
The results indicate that auditors, as members of the audit team, can effectively contribute to improving audit quality when each auditor can individually play an active role in collaboration, due to their level of perceptual knowledge, which stems from behavioral and psychological characteristics.
Audit Quality
Alireza Javadipour; jafar Babajani; Ghasem Blue; Vajhollah Ghorbanizadeh
Abstract
Considering the goals of forming the audit committee and its extensive duties, evaluating the performance of the audit committee in order to identify its strengths and weaknesses is very important. The present study presents a model for evaluating the performance of the audit committee and a practical ...
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Considering the goals of forming the audit committee and its extensive duties, evaluating the performance of the audit committee in order to identify its strengths and weaknesses is very important. The present study presents a model for evaluating the performance of the audit committee and a practical model for the use of the activities of the audit committee by the beneficiaries. The model obtained in the current research includes 3 parts of evaluating the individual characteristics of the members of the audit committee, evaluating the work processes and reporting of the audit committee, and evaluating its duties and responsibilities, and the final model includes 3 dimensions, 13 components, and 78 indicators. The results of the research showed that the working and reporting processes of the audit committee have the most weight in evaluating the performance of the audit committee, and the evaluation of the audit committee meetings as the focus of the audit committee's activities is the most important among the performance evaluation components.ObjectiveThe optimal performance of the audit committee is an important variable in improving the processes and structure of corporate governance as well as financial reports. The duties of audit committees around the world are in sync with developments in the economic environment, and in Iran, according to the approved charter of the audit committee, the purpose of forming an audit committee in companies is to help fulfill the supervisory responsibility of the board of directors and to improve it in order to obtain assurance of reasonable quality of financial reporting, effectiveness of the internal audit process, ensuring the independence of the independent auditor and its effectiveness, adapting the company's activities to the laws, and ensuring the effectiveness of the activities of the corporate governance system, its committees, and other components. Considering the goals of forming the audit committee and its extensive duties, evaluating the performance of the audit committee in order to identify its strengths and weaknesses is very important. Due to the lack of comprehensive research in the country to provide a model to evaluate the performance of the audit committee, the present research has addressed this issue and a practical model for the use of the activities of the audit committee has been presented.MethodThe research method used in the first stage of the study involved extracting the dimensions, components, and performance evaluation indicators of the audit committee from the theoretical sources of the research. Then, the Fuzzy Delphi method was used to screen the indicators, and the Best-Worst Method (BWM) multi-criteria decision-making method was used to weigh each dimension, component, and index. Finally, to determine the gap between the existing situation in the field of audit committee performance evaluation and the model obtained in the current research, the Fuzzy Gap method has been used.FindingsBy studying the theoretical sources of the research, 96 indicators were determined to evaluate the performance of the audit committee, which were classified into 3 dimensions and 15 components using theoretical foundations. In the next step, to check the indicators, interviews were first conducted with 10 experts. In the interviews conducted regarding 6 indicators, revisions, and content adjustments were made to adapt to the current conditions of the country's economic environment. One index was also removed due to the lack of a legal structure for the index in Iran. In the next step, 95 finalized indicators were presented to the research experts for screening, and the responses given by the research experts were analyzed using the Fuzzy Delphi method. By calculating the fuzzy average of the numbers and then de-fuzzifying them, indicators with a de-fuzzified number less than 0.7 were removed, and 78 indicators were approved by the research experts. The model obtained in the current research includes three parts: evaluating the individual characteristics of the members of the audit committee, evaluating the work processes and reporting of the audit committee, and evaluating its duties and responsibilities. The final model includes 3 dimensions, 13 components, and 78 indicators.4- ConclusionAccording to the findings of the research, the important components in evaluating the performance of the audit committee are the audit committee meetings, the audit committee resources, communication with the board of directors, the audit committee charter, and monitoring of financial reporting. The results of the research showed that the working and reporting processes of the audit committee carry the most weight in the evaluation of the audit committee's performance, with a weight of about 66%, and the evaluation of the audit committee meetings as the focus of the audit committee's activities is the most important among the evaluation components. Also, proper communication with the board of directors, provision of sufficient resources for the activities of the audit committee, the existence of an approved charter of the audit committee, and monitoring of internal controls and financial reporting are important areas for evaluating the performance of the audit committee. The results of the research also indicated the existence of a significant gap between the current status of the audit committee's performance evaluation and the model obtained in the research. In this regard, it is suggested that the legislator (Securities and Exchange Organization) obliges the listed companies to evaluate the performance of the audit committee under their supervision. Furthermore, it is recommended to use the model presented in the current research, considering the importance of dimensions and components. Additionally, the board of directors of the companies can improve the performance of these committees by taking into account the important components of the audit committee's performance, by holding the audit committees under their supervision accountable in these areas, and also making a reasonable and logical assessment of their performance.Enhancing KnowledgeThis research has presented a practical model to evaluate the performance of the audit committee according to the characteristics of Iran's economic environment, which can serve as the basis for analyzing the performance of the audit committee based on its different functional dimensions.
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.
Accounting tools
Mehri Bakhteyari; Javad Rezazadeh; kumars Biglar
Abstract
The implementation of the engagement quality control review (EQCR) by the engagement quality control reviewer has been considered as one of the key elements of quality control in the auditing standards and its implementation is required in the audit of companies listed on the stock exchange. In this ...
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The implementation of the engagement quality control review (EQCR) by the engagement quality control reviewer has been considered as one of the key elements of quality control in the auditing standards and its implementation is required in the audit of companies listed on the stock exchange. In this research, the data were collected through (1) conducting interviews with 25 partners of Iranian auditing firms in the spring and summer of 2023 and (2) the opinions of 12 certified accountants that were published in a newspaper or professional journals in the form of a conversation, round table, notes or articles. Then, by applying the grounded theory, the components that are the obstacles to the effective application of EQCR are identified and presented in the form of a conceptual system model. The validity of the research model was confirmed by 7 audit partners. The findings from the analysis of research data show that there are various obstacles in its different dimensions, the most important of which are: the structure and organization of some audit firm, the small size of many audit firms, economic considerations, low fees of Iranian audit firms, lack of qualified auditors, moral issues in the society, the society's specific problems, governing laws and regulations, weaknesses in quality grading of audit firms, inadequate communication with international professional communities, low awareness of auditing and lack of development, and low application of technology in Iranian audit firms. Considering that the international auditing standard 220 has been updated and includes more requirements for the EQCR, along with the findings of this research showing that the quality control standard is not effectively implemented by Iranian audit firms, some suggestions are given to fill these gaps.IntroductionThe objective of a firm is to design, implement, and operate a system of quality control for audit, review of financial statements, or other assurance or related services engagements performed by a firm, that provides the firm with reasonable assurance that: (a) The firm and its personnel fulfill their responsibilities in accordance with professional standards and applicable legal and regulatory requirements, and conduct engagements in accordance with such standards and requirements; and (b) Engagement reports issued by the firm or engagement partners are appropriate in the circumstances. According to the auditing standards, engagement quality review is an objective evaluation of the significant judgments made by the engagement team and the conclusions reached thereon, performed by the engagement quality reviewer and completed on or before the date of the engagement report. Engagement quality reviewer is a partner, other individual in the firm, or an external individual, appointed by the firm to perform the engagement quality review (IAASB, 2020). Surveys show that engagement quality control review, as one of the key elements of quality control, has not been established in Iranian audit firms. Its causes have not been clarified in previous research. Therefore, in this research, we seek to clarify its causes and obstacles.Research Question(s)What are the obstacles of applying engagement quality control review in Iranian audit firms?Literature ReviewEngagement quality control review is one of the key elements of the quality control system of auditing firms, which is considered in the auditing standards. The literature review shows that this issue has not been studied in Iran. However, some Iranian certified public accountants and audit firm partners have pointed out some obstacles of implementing quality control reviews in the form of notes and roundtables published in professional journals. The Public Company Accounting Oversight Board has described the key issues of quality control review in the United States in 2023 in a report entitled " SPOTLIGHT: Inspection Observations Related to Engagement Quality Reviews". This report shows that there are still many concerns about the quality control review (PCAOB, 2023).MethodologyConsidering the nature of the research problem, which is subjective and relies on the experience of audit institution partners, the application of a qualitative research approach is deemed appropriate. Additionally, since no specific theory has elucidated this phenomenon and there has been no prior research in this area, the use of grounded theory is fitting. Conducting interviews is one of the main methods of data collection in grounded theory (Strauss & Corbin,1990). Therefore, research data have been collected through interviews. Interviews were conducted with 25 partners of audit firms in the spring and summer of 2023. It is noteworthy that in grounded theory, all information is considered as data (Danai Fred et al., 2013). Hence, discussions, roundtables or articles published by 12 Iranian certified public accountants in professional journals or newspapers were also used as data. In the qualitative method of research, unlike the quantitative approach, statistical sampling is not important and sampling is judgmental. That is, people who have the most experience and involvement with the studied phenomenon are selected. Interviews with participants continue until theoretical saturation is reached, meaning that new participants do not introduce new insights beyond what has already been discussed.The interviews are then transcribed, and conceptual tags are attached to each sentence or paragraph of the text. In grounded theory, data analysis is done in three stages: open coding, axial coding, and selective coding. In this research, three methods were used to analyze the data.ResultsAfter conducting the research and data analysis, it is found that there are various obstacles in various dimensions for the application of quality control in Iranian audit firms. These obstacles were extracted in the form of conceptual tags. Based on selective coding, they were classified into different categories. To provide a comprehensible presentation of the barriers, these conceptual labels were categorized and presented in the form of inputs, processes, outputs, consequences, and contextual factors. Presenting these conceptual labels of obstacles in different dimensions helps us to have an accurate picture of the causes and obstacles so that we can adopt strategies to solve them. Some of the most important obstacles are: the structure and organization of some audit firms, the small size of many audit firms, economic considerations, low fees of Iranian audit firms, lack of qualified auditors, moral issues in the society, the society's specific problems, governing laws and regulations, weaknesses in quality grading of audit firms, inadequate communication with international professional communities, low awareness of auditing, and lack of development, and low application of technology in Iranian audit firms.DiscussionIn this research, after analyzing the data, many obstacles are extracted in various dimensions. These factors limit the effective implementation of engagement quality control review as one of the key elements of the audit quality control system. With these conditions, achieving audit quality becomes challenging.ConclusionIn this research, the obstacles to the application of quality control review in Iranian audit firms were examined. The findings show that there are many obstacles in different dimensions. The structure and organization of some audit firm, the small size of many audit firms, economic considerations, low fees of Iranian audit firms, lack of qualified auditors, moral issues in the society, the society's specific problems, governing laws and regulations, weaknesses in quality grading of audit firms, inadequate communication with international professional communities, low awareness of auditing and lack of development, and low application of technology in Iranian audit firms are the main obstacles to the application of engagement quality control review in Iranian audit firms. If these obstacles are not removed, the audit quality of Iranian audit firms will be affected. Additionally, in the present circumstances, it cannot be assured that professional standards will be fully followed. This research is the first Iranian research that has studied this issue and can be an avenue for future research. Future research could study other stakeholders or rank these obstacles. Furthermore, conducting similar research in the future will clarify the extent to which these obstacles can be overcome. The findings of this research can provide a clear perspective on engagement quality control review in Iranian audit firms and its obstacles to regulators, such as the Iranian Association of Certified Public Accountants (IACPA). One suggestion arising from the findings could be to increase the weight of the scores related to the engagement quality control review. Another suggestion would be to promote and clarify the benefits of engagement quality control review for audit firms. The last suggestion is the training of competent quality control reviewers by the AICPA or other educational and professional centers.AcknowledgmentsWe acknowledge the participants in this research who helped us.
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.
Financial audit
Bita Mashayekhi; Milad Samavat; Amin Jahangard
Abstract
This study aims to conduct a literature review on internal audit quality literature using bibliometrics methods, including time-trend and impact analysis of studies, journals, authors, institutions, and countries. We also identified Conceptual, Intellectual, and Social structure of this line of research. ...
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This study aims to conduct a literature review on internal audit quality literature using bibliometrics methods, including time-trend and impact analysis of studies, journals, authors, institutions, and countries. We also identified Conceptual, Intellectual, and Social structure of this line of research. To fulfill our purpose, we applied a bibliometrics approach to 92 research papers from 1993-2023, which we acquired from Web of Science (WoS) database.IntroductionA review of the literature in the field of internal audit quality shows the variety of topics in the research conducted in the past years. Therefore, a systematic review of the research is conducted in this field with the intention of creating a deeper understanding of the research on internal audit quality for researchers who intend to study in this field, and drawing some potential future research paths for this field.The main research questions are as follows:1) What is the trend of studies conducted in the field of internal audit quality? (Trend analysis)2) Which are the most influential articles, authors, journals, research institutions, and countries in the field of internal audit quality research? (Impact analysis)3) Which topics form the body of knowledge of internal audit quality research? (Conceptual structure)4) Which topics in the field of internal audit quality have been sufficiently developed and which are still developing and need further investigation? (Conceptual structure)5) What are the cooperation networks between authors, research institutions, and countries in conducting internal audit quality research? (Intellectual and social structure)Literature Review2.1. Determinants of internal audit qualityBased on previous research, the personal characteristics of the internal auditors (Erasmus and Coetzee, 2018), the support and power of senior management (Jiang et al., 2018), Organizational independence and commitment, the time pressure imposed on the internal auditor (Samagaio and Felício, 2022), the use of information technology by internal auditors (Deribe and Regasa, 2014), the quality of the audit committee's performance and its participation in internal audit planning and reporting (Abdullah, 2018), the size of the internal audit (Erasmus and Coetzee, 2018), and the uncertainty and complexity of the company's environment (Jiang et al., 2018) affect the internal audit quality.2.1. Concequences of internal audit qualityAccording to previous research, the high-quality internal audit can affect the quality of corporate governance (Lenz and Hahn, 2015), internal controls quality (IIA, 2015), earnings management and financial reporting quality (Prawitt et al., 2009), external audit fee (Mat Zail et al., 2015), and external audit delay (Abbott et al., 2012b).MethodologyIn this paper, the bibliometric analysis is used in order to examine the trend and impact analysis, as well as analyze the conceptual, intellectual, and social structure of the internal audit quality research field. Also, in order to implement bibliometric methods, the Bibliometrix package is used in R.ResultsOur findings indicate an increasing trend in the number of research studies on internal audit quality literature. We also document that Prawitt et al. (2009) is the most cited paper; David A. Wood from Brigham Young University is the most influential author; Accounting Review is the most influential journal; Managerial Auditing Journal is the most productive journal; Brigham Young University is the most prolific institution; and the USA is the most influential country in this research field. "Corporate Governance", "Internal Controls", "Audit Effectiveness", and "Audit Competency" are among the dynamic topics that are well-developed in internal audit quality literature. "Earnings Management" and "Risk Management" are emerging topics, and we predict an increase in the number of studies on them in the years to come. We also argue that although "Accountability" is a critical topic in internal audit quality literature, it can still be developed further in future research.DiscussionThe results indicate the concepts of "corporate governance", "audit committees", "earnings management", "internal controls", and "financial reporting quality" are the most frequent keywords in this field. Repetition of these concepts in the articles of this field can emphasize the role of high-quality internal audit in a suitable structure of corporate governance, indicating its role in strengthening internal controls and preventing managers’ misconduct, and ultimately increasing the transparency and quality of financial reporting. Also, "earnings management" and "risk management" are hot topics and of particular interest to researchers and academics. It is expected that future research will focus on these two topics. Also, the analysis of the thematic map of keywords in the research field of internal audit quality shows the important role of "accountability" in improving the quality of internal audit and its potential for development and growth in future research. The global map of countries' cooperation in the field of internal audit quality shows that the most scientific cooperation of countries in the field of internal audit quality research is dedicated to some developing countries. It seems that the quality of internal audit in these countries has a double importance in the eyes of researchers and professionals.ConclusionThe findings of this paper can provide researchers with an insight to conduct studies on the quality of internal audit in the future. This research has several contributions. This research is the first attempt to use bibliometric methods in order to review the internal audit quality literature. The results of this research not only provide a comprehensive picture of the research in this field but also help in the direction of future studies by introducing the hot topics in the field. Also, researchers can refer to the results of this research in choosing co-authors or research institutions to conduct joint research in the field of internal audit quality.The professionals can use our results to improve the quality of internal audits by knowing the related key issues and the researchers and sources who have produced more reliable documents.