A Pattern for Measuring Quality of Financial Statements

Davanipour, Iraj; Blue, Ghasem; Amiri, Maghsoud

doi:10.22054/qjma.2019.44845.2033

A Pattern for Measuring Quality of Financial Statements

Document Type : Research Paper

Authors

Iraj Davanipour ¹

Ghasem Blue ²

Maghsoud Amiri ³

¹ PhD of Accounting, Allameh Tabataba'i University,Iran,Tehran

² Associated Professor of Accounting Department Allameh Tabataba'i University,Iran,Tehran

³ Professor of Industrial management Allameh Tabataba'i,Tehran ,Iran

https://doi.org/10.22054/qjma.2019.44845.2033

Abstract

This research aims to present a pattern for measuring the quality of financial statements. To achieve this aim, firstly by reviewing the literature and theoretical background and also running an expert interview, a collection of indexes related to the quality of financial statements are identified, and then by using a questionnaire and performing Fuzzy Delphi method and confirmatory factor analysis we have identified indexes which have a significant effect on the quality of financial statements. After that, using the analytic network process, we have measured the relative weight of each of those indexes (7 indexes) regarding their effect on the quality of financial statements. Lastly, by measuring each of the indexes, and then computing the weighted average of measurements of all indexes (7 indexes), the measure of the quality of financial statements is computed. For assessing the validity of the presented pattern, we have used a regression model for 57 companies listed in Tehran Exchange for years from 1394 to 1396. We have shown that consistent with the literature, there is a significant negative relationship between the quality of financial statements and cost of equity. This relationship proves that the presented pattern has enough validity for measuring the quality of financial statements. Results of this research have shown that average of measures of quality of financial statements for 57 selected firms during years 1394 to 1396 are improved.

Keywords

Quality of financial statements

Measure of quality of financial statements

Financial statement quality indexes

Weight of financial statement quality indexes

Subjects

Financial Accounting

Akhgar, M., & Karami, A. (2014). Firm Characteristics and Financial Reporting Quality of Quoted Listed Companies in Tehran Stock Exchange. Accounting Review, 1 (4), 1-18. [In Persian]

Aflatooni A.,& Amirbakhtiarvand A. (2016). The Effect of Financial Reporting Qualityand Disclosure Quality on the Cost of Capital: Instrumental Variable Approach. Quarterly Financial Accounting Journal, 8 (31), 30-50. [In Persian]

Esnaashari, H., Hejazi, R., & Mojtahedzadeh, V. (2013 ). Designing a Model for Measuring Accounting Information Quality. Financial Accounting Research, 20, 75-94. [In Persian]

Moharrami, M., & Babajani, J. (2017). Determination of financial performance measurement indicators and accounting system capabilities for financial accountability in Tehran Municipality. Empirical Studies in Financial Accounting Quarterly, 14( 55), 1-30. [In Persian]

Barzideh, F., Taghavifard, M., & Zamanian, F. (2013). Portfolio Selection by DEMATEL and Analytic Network Process. Empirical Studies in Financial Accounting Quarterly, 10( 39), 105-124. [In Persian]

Banimahd, B., & Mohsenisharif, M. (2015). An Investigation of effective factors on ranking of firm disclosure quality and timeliness Tehran Stock Exchange. Management Accounting, 3, 51-63. [In Persian]

Sajadi, H., Zaranejad, M., & Jafari, A. (2009). Non- Financial Qualities Effective on Financial Reporting Quality in Firms Listed in Tehran Stock Exchange. Accounting and Auditing Review, 57, 51-68. [In Persian]

Azizpor shirsavar, M. (2015). Relation Between Auditing Quality and Financial Reporting Quality. Management and Accounting Research, 5, 88-105. [In Persian]

Kordestani, G., & Rahimi, M. (2010). Investigating Factors Contributing The Level of Financial Reporting Quality and its Economic Effects in Capital Market. Journal of Accounting Knowledge, 1,1, 68-92. [In Persian]

Nikoomaram, H., & Badavar Nahandi, Y. (2009). Explaining and Developing a Model for Determination and Evaluation of Factors that Affect Financial Reporting Quality Choice in Iran. The journal of Productivity Management, 3(8), 141-187. [In Persian]