Empirical Studies in Financial Accounting

Abstract 1. Introduction
Independent auditors’ decision-making has always been of great importance due to its complex nature, inherent uncertainty, and far-reaching effects on the credibility of financial reporting and investors’ trust. During the audit process, auditors face a vast amount of information, evidence, and complex issues that challenge their professional judgment. The stability, consistency, and reliability of these judgments under time pressure, organizational constraints, economic conditions, and legal requirements give rise to a crucial concept known as decision-making stability. This stability not only ensures the quality of financial reporting, but also strengthens the social capital of the auditing profession. However, the research literature in Iran has paid limited comprehensive attention to identifying and modeling the factors affecting this stability. Therefore, the main objective of this study has been to address this theoretical and practical gap by identifying, explaining, and prioritizing the factors influencing the decision-making stability of independent auditors in Iran, and by providing a comprehensive and localized framework for improving this vital process. This study seeks to determine which factors in the individual, organizational, environmental, and professional levels play the greatest role in strengthening or weakening judgment stability, how these factors are causally related, and which of them serve as foundational and driving forces. Ultimately, the applied goal of the study is to provide a practical model for professional policymakers, audit firm managers, and educational institutions in order to enhance the stability and reliability of auditors’ decisions.
2. Materials and Methods
To achieve the above objectives, this research adopted a mixed exploratory-structural approach. In the first phase, the fuzzy Delphi technique was used to identify and refine the initial variables affecting decision-making stability. This method was considered highly appropriate for this stage because of its ability to collect expert opinions, achieve consensus, and reduce the effect of individual biases. The expert group in this phase consisted of 10 university professors, partners of audit firms, and prominent professional specialists with significant academic and practical experience. The Delphi process was conducted over three rounds, and in each round the items extracted from the theoretical literature and initial interviews were evaluated. Using fuzzy logic, the degree of agreement and the dispersion of opinions were analyzed, and in the end, 179 items were approved by the experts as final indicators. These items were considered capable, in terms of importance and conceptual stability, of explaining decision-making stability. In the second phase, to analyze causal relationships and determine the hierarchical structure among the identified factors, Interpretive Structural Modeling (ISM) was employed. This method is highly effective for mapping complex and directional relationships among variables, especially in social and organizational systems. For implementing this model, a questionnaire was designed based on the items confirmed in the Delphi phase and distributed among 300 independent auditors. After collecting and analyzing the data using specialized software, the relationships among the factors were determined and their different levels of importance were identified. This two-stage approach made it possible to identify the factors comprehensively and to gain a deep understanding of the relationships among them.
3. Results and Discussion
The research findings led to the identification of eight key factor categories and the presentation of a comprehensive model for the decision-making stability of independent auditors in Iran. These factors include: Situational, Occupational, and Work Pressures (C1); Cognitive, Skill-Based, and Knowledge Factors (C2); Technology, Tools, and Executive Methods (C3); Decision-Making Stability and Its Consequences (C4); Organizational, Managerial, and Cultural Factors (C5); Independence, Professional Governance, and Public Trust (C6); Environmental, Economic, and Legal Factors (C7); and Individual, Psychological, and Ethical Factors (C8). Analyses based on the ISM model revealed that these factors possess a hierarchical and dynamic structure. At the lowest and most foundational level of the model are factors that play the most driving role; these include cognitive, skill-based, and knowledge factors (C2) (such as analytical ability, experience, and specialized knowledge), individual, psychological, and ethical factors (C8) (such as resilience, self-control, and professional integrity), and independence, professional governance, and public trust (C6) (which provide the necessary institutional framework for independent judgment). At the intermediate level are factors such as organizational, managerial, and cultural factors (C5) and work and situational pressures (C1), which act as facilitating or moderating factors and can either strengthen or weaken the influence of the foundational factors. At the higher and framework-forming levels are environmental, economic, and legal factors (C7) and technology, tools, and executive methods (C3), which provide the overall context and platform for the auditor’s activity. Finally, decision-making stability and its consequences (C4) were identified as the main output and the highest level of this complex system. This hierarchical structure indicates that decision-making stability is the result of multifaceted and systemic interactions among variables and cannot be reduced to a single dimension.
4. Conclusion
The results of this study have significant theoretical and practical implications. From a theoretical perspective, by presenting a localized, comprehensive, and causal model for the decision-making stability of independent auditors in Iran, this research has substantially enriched the scholarly literature in the fields of auditing and professional behavior. Discovering the hierarchical relationships and identifying the foundational (driving), mediating, and framework-forming factors provides a more systemic and in-depth perspective on professional judgment phenomena, extending beyond simple correlational analyses. From a practical standpoint, the research findings offer valuable practical guidance for various stakeholders. For policymaking and professional oversight bodies, these results can serve as a basis for designing policies to strengthen auditor independence, revise regulations, and improve quality assurance. Audit firm managers can focus on organizational and cultural factors (C5) and by providing a supportive environment, manage work pressures (C1), thereby enhancing decision-making stability among their staff. Furthermore, training programs should concentrate on strengthening the cognitive, skill-based, and psychological factors (C2 and C8) of auditors. Optimal utilization of modern technologies (C3) can also serve as a facilitating factor, enhancing the quality and stability of professional judgment. Ultimately, understanding these complex relationships will lead to improved credibility of financial reporting and increased investor confidence as the final outcome (C4). Thus, by offering a deeper understanding of the factors influencing decision-making stability, this research has charted a practical roadmap for enhancing the quality and reliability of the auditing profession in Iran.
Keywords: Decision-making stability, Independent auditors, Factors influencing decision-making, Interpretive Structural Modeling.

Abstract Objective: The internal audit report is a critical communication link between the internal audit function and corporate governance bodies, including the audit committee, executive management, and the board of directors. Despite its strategic importance for audit effectiveness and organizational health, no comprehensive and systematic research has holistically addressed its quality dimensions, components, and indicators. A review of the literature reveals three fundamental gaps: fragmentation among existing research perspectives, the absence of a unified framework for measuring report quality, and the neglect of diverse stakeholder expectations in content development. To address these gaps, this study aims to provide a systematic framework for explaining the dimensions, components, and indicators of internal audit report quality in Iran.
Methodology: This developmental-applied research employed a systematic literature review. A comprehensive search was conducted across major databases, including Scopus, Web of Science, ScienceDirect, Emerald, Google Scholar, Wiley, ProQuest, the IIA website, SID, Magiran, and Civilica, covering January 2000 to December 2025. The search strategy used Persian and English keywords such as "internal audit report," "internal audit reporting," "audit reporting quality," and "improving audit communication." To ensure rigor, the review protocol was based on the SPIDER framework, suitable for qualitative research on concepts and indicators. The initial search identified 1,274 articles. After title and keyword screening, 1,093 unrelated articles were removed. Subsequently, 181 articles were reviewed at the abstract level, excluding 113. The full texts of 68 articles were thoroughly evaluated, leading to the exclusion of 17 sources due to unavailability, exclusive focus on process quality without addressing report characteristics, lack of objective indicators, content duplication, or lack of credibility. Ultimately, 51 eligible sources—including 44 research articles, 3 doctoral dissertations, and 2 reference books—were selected for final analysis. Given the qualitative nature of the extracted data and study heterogeneity, narrative synthesis was used to combine findings, supplemented by thematic analysis to enhance transparency and trustworthiness. The synthesis proceeded in three stages: a preliminary review described each study in terms of objectives, methodology, and key findings; open coding extracted every statement related to report quality and grouped similar codes into broader components; and finally, related components were aggregated into higher-level dimensions, forming the final multi-level conceptual framework.
Findings: The analysis revealed a comprehensive framework consisting of 51 indicators, 15 components, and four main dimensions. The first dimension, labeled "Qualitative Communication Characteristics," encompasses eight components. Accuracy and precision require content accuracy, precise vocabulary, numerical correctness, and traceable citation. Objectivity and impartiality demand reliance on factual evidence, immunity from relationships or pressures, and balanced presentation of relevant facts. Transparency and clarity involve logical flow, simple and unambiguous language, guiding headings, and sufficient supporting details. Conciseness means avoiding redundancy and repetition, focusing on key points, and summarizing without sacrificing completeness. Constructiveness entails a positive, professional, non-blaming tone; focus on practical solutions; forward-looking perspective; and balanced feedback on strengths and weaknesses. Completeness requires coverage of all audit objectives and areas, sufficient depth of analysis, mention of all significant considerations, and adaptation to audience needs. Timeliness involves appropriate timing based on issue importance, adherence to agreed deadlines, and currency of information. Readability and communicative effectiveness reduce cognitive load, enhance deep processing, and encourage stakeholder engagement and action.
The second dimension, "Structural Requirements," comprises two components. Mandatory content comprehensiveness includes stating objectives, scope, findings, priorities, recommendations, conclusions, and action plans; analyzing each finding based on criteria, conditions, root causes, impact, and priority; specifying responsible parties and deadlines; and disclosing scope limitations or non-compliance. Effective organization and formatting require adherence to organizational templates, logical hierarchical structure, clear information flow, and purposeful use of visual aids such as dashboards, heat maps, charts, and graphs.
The third dimension, "Stakeholder Alignment," includes two components. Audience appropriateness involves customizing detail levels and adjusting tone and language to the audience's knowledge and position. Professional balance and maintenance of role boundaries entail transparency regarding responsibility and limitations, providing advisory value without overstepping management prerogatives, maintaining independence by avoiding involvement in execution, and managing key stakeholder expectations.
The fourth dimension, "Informational and Strategic Value," consists of three components. Strategic focus on important issues requires intelligent prioritization to direct attention to high-impact areas and proportionality of analysis depth to issue significance. Relevance and entity specificity demand explicit linkage of findings to strategic objectives and risks, avoidance of clichés, and contextual, root-cause-driven analysis. Identification of macro trends involves horizontal integration of findings over time and across the organization, identifying and quantifying overarching patterns, and offering strategic, actionable recommendations at the macro level.
Conclusion: The proposed conceptual framework enables systematic assessment of internal audit report quality. It aligns with the IIA's mandatory professional standards and the classic Seven Cs of communication, while extending existing frameworks by incorporating two previously neglected dimensions: "Stakeholder Alignment" and "Informational and Strategic Value." However, empirical validation in the Iranian organizational context is essential before operational application. This framework serves as an initial theoretical basis for developing national internal audit reporting standards, designing measurement tools for future research, and revising internal audit practices in Iran.

Abstract The reporting of Key Audit Matters (KAMs) represents a fundamental shift in modern auditing standards, aimed at enhancing the transparency of financial reports and improving communication between auditors and stakeholders. Despite the mandatory adoption of International Standard on Auditing (ISA) 701 in Iran, there is a noticeable lack of a localized and coherent framework that captures the economic, cultural, and professional complexities affecting the KAM reporting process. This gap has led to operational and judgmental challenges, undermining the effective implementation of the standard. Therefore, this study aims to develop and present a comprehensive model for KAM reporting from the perspective of auditors in Iran.
 

Introduction

Despite the many benefits of reporting on key audit matters, the implementation of this standard in practice faces several challenges. These challenges at the global level include the complexity of identifying and selecting key audit matters, the balance between transparency and confidentiality, professional pressures and stakeholder expectations, implementation costs, and cultural-supervisory differences. However, the global literature has been produced mainly in the context of stable economies with integrated supervisory systems, and its direct generalizability to unconventional economic-political environments (such as Iran, which is affected by international sanctions, chronic inflation, and currency fluctuations) is theoretically uncertain and, in practice, requires testing and adjustment.
In Iran, given the adoption of the ISA701 standard by the Auditing Organization since 1401, these challenges have taken on a different and more complex form in the context of specific economic conditions (such as chronic inflation, currency fluctuations, and sanctions) and the characteristics of the auditing profession (such as differences in the level of preparedness of audit firms, conservative culture, and regulatory restrictions). Therefore, relying solely on foreign literature and models without considering these local factors can lead to a formal and ineffective implementation of the standard.

Methodology

This study employed a mixed-method sequential exploratory design. In the qualitative phase, a grounded theory methodology was used. The qualitative population consisted of technical managers, senior executives, board members of the Audit Organization, partners and managers of Tehran Stock Exchange-approved audit firms, and audit committee members of listed companies, selected through theoretical sampling. Semi-structured interviews were conducted until theoretical saturation was achieved. Data analysis was performed through open, axial, and selective coding, leading to the development of a conceptual paradigm model. Subsequently, this model was tested in the quantitative phase using 130 valid questionnaires. In the quantitative phase, a researcher-made questionnaire was developed directly from the qualitative findings, including Likert-scale items, open-ended questions, and scenario-based questions. The questionnaire was distributed among senior auditors and audit managers from the Audit Organization and audit firms.

Findings

Structural equation modeling (SEM) was employed to test the research hypotheses. The qualitative analysis identified five main categories within a paradigm model, including causal conditions, contextual conditions, intervening conditions, strategies, and consequences. The core phenomenon was identified as "Key Audit Matters Reporting." The quantitative results confirmed that legal requirements and professional judgment (causal conditions) have a positive and significant effect on the KAM reporting process. Furthermore, strategies such as interaction with the audit committee and enhancing transparency lead to two distinct types of consequences: internal consequences (including increased audit fees, extended audit time, and improved documentation quality) and external consequences (including reduced information asymmetry, strengthened investor confidence, and enhanced professional legitimacy). The distinction between these two categories shows that despite the cost-intensive nature of this process for audit firms (internal consequences), its achievements at the capital market level (external consequences) justify accepting this professional responsibility. The structural model demonstrated good fit, with strategies having the strongest impact on consequences. All research hypotheses were confirmed at a high confidence level. The explained variance for the core phenomenon and for the consequences indicated a strong model. This study provides a comprehensive, locally developed model for KAM reporting in Iran. The findings confirm that KAM reporting in Iran extends beyond a technical requirement to become a tool for risk management and the reconstruction of auditors' social capital in a volatile economic environment. The model highlights that external consequences (e.g., reduced information asymmetry, enhanced investor confidence, improved professional legitimacy) significantly outweigh the internal costs (e.g., increased fees, longer audit times), thereby justifying the adoption of this professional responsibility.
 The results of structural equation modeling confirmed the positive and direct significance of causal variables on KAM reporting and validated the mediating and consequential roles of the extracted constructs. The study emphasizes that effective implementation of ISA 701 in Iran requires localized guidelines, continuous professional training, improved auditor-manager interaction, and the establishment of an industrial database of reported KAMs.

Innovation in research

The main innovation of this research is the separation of consequences into two levels: internal and external. Regarding internal consequences (costs and risk), the findings showed that reporting major issues increases fees and processing time.

Abstract the disclosure of material corporate information therein, the auditing of such reports has attracted the attention of capital market stakeholders. Accordingly, the aim of this study is to examine the existing ambiguities in the auditing practices of MD&A reports and to propose strategies for their resolution. This research adopts a qualitative approach, employing grounded theory and interviews with 24 experts, including auditing professionals, capital market analysts, managers of listed companies, and officials from the regulatory authority. The initial interviewees were selected based on theoretical sampling, drawing on their expertise in the subject area, and subsequent participants were identified through snowball sampling. The collected data were analyzed using open, axial, and selective coding techniques. Based on the findings, the main ambiguities in the current auditing practices of MD&A reports include: the auditor’s level of responsibility with respect to MD&A; the auditor’s opinion on MD&A in the context of interim financial statements; and the examination of forward-looking information in MD&A by the auditor. The key proposed strategies to address these ambiguities are: removing forward-looking information from MD&A or entering into a separate engagement with corresponding fees for the auditor to opine on these reports; refraining from expressing an opinion on MD&A in the context of interim financial statements or issuing such an opinion in accordance with review engagement procedures; and expressing an opinion on forward-looking information in MD&A in line with the relevant auditing standard.

Introduction

Given the economic conditions of Iran, which have, due to sanctions, resulted in severe inflationary pressures, systematic risks in the market have increased, and uncertainty about the future has intensified. In such an environment, investors require reliable information beyond financial statements in order to make informed decisions regarding participation in the capital market. Management’s Discussion and Analysis (MD&A) represents one of the appropriate reporting tools through which an adequate level of transparency can be established in the capital market, thereby facilitating the channeling of liquidity toward this market. In this regard, auditing MD&A is of particular importance for enhancing its reliability. However, the inherent complexity and the qualitative and interpretive nature of MD&A pose significant challenges for auditors. One of the main challenges in auditing MD&A is the absence of clear and globally accepted auditing frameworks and standards. At present, independent auditors do not provide any assurance on MD&A and merely read these reports for the purpose of identifying potential material inconsistencies with the financial statements. Consequently, under the existing practice, the manner in which credibility is attributed to MD&A is ambiguous, and it is unclear who would be held accountable in the event of material misstatements in these reports. Accordingly, the present study first seeks to identify the existing ambiguities in the current practice of auditing MD&A and the consequences arising from these ambiguities. In the next stage, it aims to identify appropriate strategies, as well as the necessary infrastructures, to eliminate the existing ambiguities and their associated consequences. The research questions addressed in this study are as follows:

What ambiguities exist in the current practice of auditing MD&A?
What are the consequences of the existing ambiguities in the current practice of auditing MD&A?
What strategies can be adopted to resolve the ambiguities in the current practice of auditing MD&A?
What infrastructures are required to improve the process of auditing MD&A by independent auditors?


Literature Review

Overall, prior studies conducted in the area of auditing Management’s Discussion and Analysis (MD&A) have primarily emphasized the importance of auditing MD&A in enhancing the credibility of these reports, users’ demand for auditors’ opinions and assurance on MD&A, as well as the influence of auditors on the tone of MD&A. In addition, several studies have examined the relationship between the quality of MD&A and auditors’ efforts in auditing these reports, as well as audit fees. Moreover, some studies have focused on the role of the audit committee in the preparation of MD&A and have concluded that the presence of a knowledgeable and expert audit committee contributes to improving the quality of MD&A auditing.

Methodology

The present study was conducted using the grounded theory methodology through interviews with 24 experts from the auditing profession, capital market analysts, managers of listed companies, and specialists from the regulatory authority. The initial interviewee was selected through theoretical sampling, based on their recognized contributions and viewpoints in the subject area of the study. Subsequently, the sample was expanded for later interviews using the snowball sampling technique. The research data were analyzed using open, axial, and selective coding. This process resulted in the development of a coherent and applicable theory regarding the existing ambiguities in the practice of auditing Management’s Discussion and Analysis (MD&A) in Iran and the strategies for addressing them, which can be utilized in both academic and practical contexts.

Results

Based on the research findings, the ambiguities identified in the current practice of auditing Management’s Discussion and Analysis (MD&A) include the level of the auditor’s responsibility with respect to MD&A, the auditor’s opinion on MD&A in the context of interim financial statements, and the auditor’s examination of forward-looking information disclosed in MD&A. The principal strategies identified to address these ambiguities include: eliminating forward-looking information from MD&A; entering into a separate engagement and paying a distinct audit fee to the auditor for providing an opinion on MD&A; refraining from expressing an auditor’s opinion on MD&A in relation to interim financial statements or, alternatively, expressing an opinion in accordance with the procedures applied in review engagements; and providing assurance on the forward-looking information disclosed in MD&A in accordance with Auditing Standard 3400.

Discussion

With respect to the auditor’s responsibility for Management’s Discussion and Analysis (MD&A) and the corresponding strategies, two distinct perspectives emerged among the experts. One group of interviewees believes that the auditor bears no responsibility for MD&A or for any potential material misstatements therein, and that the auditor’s role should be limited to reading MD&A solely in connection with the primary responsibility of auditing the financial statements and reconciling the information disclosed in MD&A with the financial statements. This group argues that, under the current circumstances, the appropriate strategy for auditing MD&A is for the independent auditor to refrain from accepting any responsibility with respect to these reports. Furthermore, independent auditors, according to this viewpoint, should neither enter into separate engagements nor receive separate fees for procedures related to MD&A. In contrast, another group of interviewees contends that, given the guidance issued by the Securities and Exchange Organization regarding the auditing of MD&A and the paragraph included in the auditor’s report pursuant to such guidance, the independent auditor does bear responsibility for MD&A. This is because the auditor’s report is subject to public interpretation, and the inclusion of this paragraph leads users to infer that the auditor’s opinion on the financial statements extends to MD&A as well, thereby implying that assurance has also been provided on this report. Accordingly, the appropriate strategy from this perspective is for the independent auditor to become formally involved in the auditing of MD&A, to enter into separate audit engagements for MD&A, and to receive a separate fee for auditing these reports.

Conclusion

It appears that, given that the independent auditor’s report is closely examined by market stakeholders and users of financial information, the auditor bears responsibility for Management’s Discussion and Analysis (MD&A) through the paragraph included in the “Other Information” section of the auditor’s report. Moreover, pursuant to paragraph T-32 of Auditing Standard 720, specific responsibilities are assigned to the independent auditor in relation to other information, to the extent that, if the auditor is unable to conclude that no material inconsistency exists in the other information or that no material misstatement is present therein, withdrawal from the audit engagement—where permitted by laws or regulations—is recommended. In addition, the auditor’s ethical and professional responsibilities require that the auditor not remain indifferent to misstatements or deviations in financial reporting, including those in MD&A, that may mislead users of financial information, and that the auditor fulfill their credibility-enhancing role with respect to the information disclosed in such reports. Therefore, if—based on these arguments—the independent auditor’s responsibility for MD&A, as one of the key reports communicated to the market, is acknowledged, the auditor’s risk in fulfilling their assurance responsibilities over financial information increases. Consequently, it is reasonable to consider the execution of separate engagement contracts and the payment of separate audit fees to independent auditors for the examination of MD&A.
 
 
 

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, 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.
 

Introduction

In 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 hypotheses
Mental 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 Review

Audit 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.

Methodology

This 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.


Conclusion

This 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.
Acknowledgments
In 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.
 

Abstract The purpose of this research is the startup accounting development field’s framework and appraisal in the context of capital market companies. This study is exploratory in terms of the type of objective, and it is considered mixed in terms of the type of data collection. In order to measure the reliability of the identified dimensions, the fuzzy Delphi process was used to examine the confirmed axes from the phase of the fuzzy Delphi analysis, based on pairwise comparison in the quantitative section through the Micmac matrix. The results of this study in the qualitative part, during 13 interviews, identified four categories, 8 components, and 41 themes of the concept and developed them in the form of a multidimensional theoretical framework. In the quantitative section, it was also determined that the effectiveness of the "G_1" educational field strengthening dimension is higher than the other examined dimensions, and this dimension was selected as the most central factor in the development of startup accounting in the context of capital market companies.

Introduction

Financial startups are considered one of the most emerging ways of managing financial resources and accounting of the third generation. While accelerating the liquidity circulation cycle in industries, they also possess higher competitive capacities to leverage the advantages of financial markets. However, the importance of the development of startups is not necessarily tied to their novelty or uniqueness in driving competitive business dynamics, but rather to their ability to provide financial services at lower costs, with greater speed and universality at the financial market level, meeting the needs of beneficiaries. This can gain legitimacy for companies through their financial and accounting functions.

Literature Review

One of the most exemplary business models is startups, which are often created as small and flexible units within organizational structures, or as start-up businesses in the form of small and medium-sized companies through innovative plans, they consistently aim to provide goods and new services that are competitive in the market. Therefore, startups can be defined in two ways. On the one hand, startups can be described as companies with the goal of achieving rapid growth in a specific market or situation. On the other hand, startups can be considered human institutions designed to create new products or services under uncertain conditions. Accordingly, startups should be considered a valuable resource for generating new knowledge, which has gradually transformed into innovation with the development of entrepreneurial infrastructure, as they leverage emerging technologies to invent new products and business models.

Methodology

This study is considered exploratory in terms of its goal within the methodology because it uses the analysis of foundational data theory based on Glazer's approach to identify the background procedures of accounting development for the implementation of financial startups in the context of capital market companies. In terms of the study’s results, it is developmental because the phenomena investigated lack theoretical coherence and an integrated content framework in the study’s context. Regarding the type of data, this study should be considered mixed. In the qualitative part, using foundational data theory and conducting interviews, the effective background procedures for the development of accounting for the implementation of financial startups are identified in the form of a theoretical framework, ensuring the reliability of the identified dimensions through Delphi analysis. In the quantitative part of this study, using the MicMak matrix, an attempt is made to identify the most central area of ​​startup accounting development in the context of capital market companies by comparing the criteria in the row " " and the column " ".

Result

In the qualitative part, through the approach of analyzing foundational data theory and conducting interviews with experts, a total of 41 conceptual themes; 8 components, and 4 categories were identified during the three stages of open, central, and selective coding. Based on this, a theoretical, multidimensional framework was developed, focusing on key axes effective in the development of startup accounting. Subsequently, the reliability of the axes identified through the foundational data theory was measured by performing a fuzzy Delphi analysis. The results indicate the confirmation of all dimensions within the analysis threshold of 0.7.

Discussion

In the following, the axes identified through the Micmac matrix were compared in pairs between the positive pole "+ve" and the negative pole "-ve" to determine the level of influence of row "i" on column "i" or vice versa. The results of the placement of the 8 confirmed axes in the 4 quadrants of the Micmac matrix are significant. Based on this analysis, it was determined that the two dimensions of strengthening the ecosystem fields "G₅" and strengthening the educational fields "G₁" respectively have a higher level of influence and effectiveness than the other dimensions.
The results indicate that capital market companies, to advance their goals of implementing start-up accounting procedures, should focus on strengthening the skill capacities of accountants to effectively use these types of software platforms, based on structural needs assessments.
 

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 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.

Objective

The 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.

Method

The 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.

Findings

By 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- Conclusion
According 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 Knowledge
This 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.

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 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. Introduction
In 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).

Methodology

The 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.

Result

In 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.

Conclusion

Although 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.

Abstract Information asymmetry and economic uncertainty are features of the capital market in today's complex business environment, which increase audit risk and litigation risk, and can be effective in explaining audit fees. The purpose of this research is to investigate the role of legal claims risk, information asymmetry and economic uncertainty in explaining audit fees. The time domain of the research is the period from 2013 to 2021 and the research sample includes 120 companies listed on the Tehran Stock Exchange. Research findings, based on analysis using multivariable regression models on combined data, show that among the macroeconomic variables investigated (including economic growth rate, inflation rate, exchange rate, and interest rate), both economic growth rate and inflation rate have a direct and significant relationship with the audit fee. Additionally, there is a direct and significant relationship between the risk of lawsuits and information asymmetry with the audit fee. The results indicate that the risk of lawsuits, economic uncertainty and information asymmetry play an effective role in explaining auditors' fees.
 

Introduction

Audit fees indicate the amount of auditors' effort to reduce the audit risk to the reasonable level. It is a measure to control financial risk and some legal claims that are threatening audit firms. According to litigation risk, auditors try to control this risk by increasing their efforts and audit fees. Chen (2019) and Frino et al. (2022) state that information asymmetry and economic uncertainty increase audit risk and litigation risk, and can influence audit fees. In other words, audit services are necessitated by the conflict between shareholders and managers. Information asymmetry and economic uncertainty increase agency costs, thereby heightening the necessity for auditing to control and manage these costs. Consequently, auditors increase audit fees to manage audit risks and ensure the thoroughness of their audit work. Therefore, this research aims to explain the effect of litigation risk, information asymmetry, and economic uncertainty on audit fees.

Methodology

Our data were collected using financial statements, notes, and audit reports in CODAL^[1] database and Rahavard-e-Novin^[2] software. The final sample for a period of 2013-2021 consists of 1080 firm-year observations. In addition, the GARCH models were employed to measure the independent variables. To test the first and second hypotheses of this research, model 1 is used:
Afee_t= litig risk_t+ Asymmetry_t+ Size_t+ INVREC_t +Lev_t + ROA_t+ loss_t+ CHANGE_t +Adu size_t + Specialist_t+ LIQUID_t + SALE_t +Year Effects+ Industry Effects (1)
To test the third hypothesis of research, model 2 is used:
Afee_t= Economic Growth_t-1+‏ Inflation Rate_t-1+ Exchange Rate_t-1+ Interest Rate_t-1+ Size_t+ INVREC_t +Lev_t + ROA_t+ loss_t+ CHANGE_t +Adu size_t + Specialist_t+ LIQUID_t + SALE_t +Year Effects+ Industry Effects (2)
Where, SIZE represents the natural logarithm of total assets; INVREC denotes the amount of inventory and receivables divided by total assets; Lev indicates total liabilities divided by total assets; ROA signifies net profit divided by total assets; LOSS is assigned 1 if a firm has experienced a loss in any of the last three years, and 0 otherwise; CHANGE is assigned 1 if a firm has changed its auditor, and 0 otherwise; LIQUID represents current assets divided by total assets; SALE represents the ratio of sales to assets; Adu size is a dummy variable that equals 1 if the audit firm was either the Iran Audit Organization (IAO) or Mofid Rahbar (an audit firm belonging to IACPA), and 0 otherwise. SPECIALISR is assigned 1 if the auditor is an industry specialist, and 0 otherwise. Audit Fee (AFEE): is the natural logarithm of the audit fee.
Information Asymmetry (Asymmetry): According to the model of Venkatesh and Chiang (1986).
Economic Uncertainty (RM): Economic uncertainty is the inability of agents to accurately predict the outcomes of decisions. In this research, it has been measured by four indicators, including the fluctuation of economic growth, inflation rate, exchange rate, and interest rate. In addition, a GARCH model was used to index these criteria. For this purpose, a volatile measure of changes in the Gross National Product (GNP) index was considered to be an indicator of the risk of macroeconomic factors that the firm faces in its financial and production decisions. The results of the estimation of the GARCH model led to conditional variances, which ultimately lead to the standard deviation or the concept of uncertainty upon taking the square root.
Litigation Risk (Litig risk): We measure this variable based on Lowry and Shu (2002), Krishnan and Zhang (2005), and Sun and Liu (2011).

Conclusion

The results of testing the first and second hypotheses indicate that the risk of lawsuits and information asymmetry have a positive and significant relationship with audit fees. In the third hypothesis, the effect of lack of economy on remuneration was investigated. In this research, four indicators including economic growth, inflation rate, exchange rate, and interest rate have been used to measure the economic uncertainty of macroeconomic variables. In this regard, the results of the hypothesis testing show that economic uncertainty based on inflation and economic growth criteria has a positive and significant relationship with audit fees. Additionally, economic uncertainty based on interest rate criterion has a negative and significant relationship with audit fees. However, the exchange rate indicator does not have a significant effect on audit fees. Therefore, it can be seen that audit risk as an indicator of determining audit fees is influenced by some economic variables such as inflation and economic growth.
In order to strengthen the results and address potential endogeneity in the research models, we redefined the dependent variable as imaginary (bivariate) and re-estimated the initial models of all three hypotheses. The results of these re-estimations confirmed the findings of the least squares regression in the first model for the first and second hypotheses. In the third hypothesis regarding economic uncertainty, economic growth and inflation rate criteria, as well as exchange rate, lead to an increase in the audit fee, while interest rate causes a decrease in the audit fee. Additionally, new control variables were added to the initial models based on the information provided in previous sections. The results of these additions confirm the findings of the initial estimation of the hypotheses.
 
 
 
 

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 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.

Introduction

A 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 Review

Blanco 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.

Methodology

The 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.

Results

The 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.

Discussion

The 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.

Conclusion

In 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.