Influence of Auditor Characteristics on Earnings Quality of Companies Listed on Tehran Stock Exchange Using Discretionary Accruals Method

Mehrsa Dehghani, Mohammad Reza Abdoli, S. Yusuf AhadiSerkani

Abstract


Accounting profession researchers and practitioners consider earnings as one of the most important criteria for evaluating the performance and determining the value of the company, and they are forced to evaluate the reported earnings by economic units. To assess the earning a concept called quality of earnings is used. This study seeks to investigate the impact of certain factors, including the audit characteristics (size of audit firm, switch of auditors and auditor opinion) on the quality of earnings through the variable of discretionary accruals. In addition, other factors such as control variables of operating leverage, profitability, firm size, and the operational risk were examined. Thus the sample data consisted of 130 participants were collected for a five year period (2008-2013) and using model explanation, three proposed hypotheses in this study were tested. Regression analysis was used to test the hypotheses. The results indicate a significant negative correlation between the size of audit institution and discretionary accruals. This means that there is a negative and significant relationship between the variable of the audit institution size and earnings quality. Also, there is a non- significant positive relationship between the variables of the type of auditor opinion and discretionary accruals. This indicates a non- significant positive relationship between the variables of the type of auditor opinion and earnings quality. Finally, there is a negative and non- significant correlation between the variable of the switch of audit and the index of discretionary accruals. This represents a negative and non- significant relationship between the switch of auditor and earnings quality variables.

Full Text:

PDF 40-49

References


Aboody, D., Hughes, J., & Liu, J. (2005). Earnings quality, insider trading, and cost of capital. Journal of accounting research, 43(5), 651-673.

Ball, R., & Shivakumar, L. (2005). Earnings quality in UK private firms: comparative loss recognition timeliness. Journal of accounting and economics, 39(1), 83-128.

Beyer, A., Guttman, I., & Marinovic, I. (2014). Earnings management and earnings quality: Theory and evidence: Stanford University Graduate School of Business Research Paper No. 14-44.

Breton, G., & Taffler, R. J. (2001). Accounting information and analyst stock recommendation decisions: a content analysis approach. Accounting and business research, 31(2), 91-101.

Burke, J., & Clark, C. (2015). Today’s corporate environment, and the interactions among its participants, are increasingly complex and dynamic. The market has responded with expansive regulations, listing rules, and bylaws aimed at empowering shareholders. With this empowerment, shareholders can now voice their discontent and demand necessary corrections. Notably, corporate constituents have not only more infor. Shareholder Empowerment: A New Era in Corporate Governance, 137.

Chen, F., Hope, O.-K., Li, Q., & Wang, X. (2011). Financial reporting quality and investment efficiency of private firms in emerging markets. The Accounting Review, 86(4), 1255-1288.

Choi, J. H., Kalay, A., & Sadka, G. (2016). Earnings news, expected earnings, and aggregate stock returns. Journal of Financial Markets, 29, 110-143.

Darrough, M., & Rangan, S. (2005). Do insiders manipulate earnings when they sell their shares in an initial public offering? Journal of accounting research, 43(1), 1-33.

Dechow, P. M., & Dichev, I. D. (2002). The quality of accruals and earnings: The role of accrual estimation errors. The Accounting Review, 77(s-1), 35-59.

ElMoatasem Abdelghany, K. (2005). Measuring the quality of earnings. Managerial Auditing Journal, 20(9), 1001-1015.

Fogarty, T. J., & Rogers, R. K. (2005). Financial analysts' reports: an extended institutional theory evaluation. Accounting, Organizations and Society, 30(4), 331-356.

Foster, G. (2004). Financial Statement Analysis, 2/e: Pearson Education India.

Guthrie, J. (2001). The management, measurement and the reporting of intellectual capital. Journal of Intellectual capital, 2(1), 27-41.

Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of accounting and economics, 31(1-3), 405-440.

Khajavi, S., & Nazemi, A. (2005). Study the relationship between earnings quality and stock returns, with emphasis on the role of accruals in Tehran Stock Exchange. Accounting and Auditing Review, 40, 37-60.

Kim, M., & Kross, W. (2005). The ability of earnings to predict future operating cash flows has been increasing—not decreasing. Journal of accounting research, 43(5), 753-780.

Krishnan, M. M., Sankaraguruswamy, S., & Shin, H. S. (1996). Skewness of Earnings and the Believability Hypothesis: How Does the Financial Market Discount Accounting Earnings Disclosures?

Mao, Y., & Renneboog, L. (2015). Do managers manipulate earnings prior to management buyouts? Journal of Corporate Finance, 35, 43-61.

Maranjory, M., Alikhani, R., Zabihzadeh, A., & Sepehri, P. (2013). The role of discretionary accruals in earnings management: Evidence from Tehran Stock Exchange. Management Science Letters, 3(9), 2399-2404.

Moradi, M., Salehi, M., & Shirdel, J. (2011). An investigation of the relationship between audit firm size and earning management in quoted companies in Tehran stock exchange. African Journal of Business Management, 5(8), 3345.

Patell, J. M. (1976). Corporate forecasts of earnings per share and stock price behavior: Empirical test. Journal of accounting research, 246-276.

Sloan, R. (2005). Do Stock Prices Fully Reflect Information in Accruals and Cash Flows about Future Earnings?', Accounting Review, 71 (3), July, 289-315. INTERNATIONAL LIBRARY OF CRITICAL WRITINGS IN ECONOMICS, 187(2), 382.

Wang, D. (2006). Founding family ownership and earnings quality. Journal of accounting research, 44(3), 619-656.

Yaghobi, F., & Fathi, Z. (2014). The Study of Earnings Management of Listed Companies in Tehran Stock Exchange. International Journal of Basic Sciences & Applied Research, 3(SP), 120-125.


Refbacks

  • There are currently no refbacks.


Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

World of Researches Publication