The effect of audit tenure and size on conservatism in Tehran Stock Exchange
DOI:
https://doi.org/10.24200/jmas.vol4iss04pp102-108Abstract
Conservatism is one of the qualitative characteristics of financial reporting. Also regarding the fact that management uses a less conservative approach strategically, we will study the effect of the size and the experience period of an auditing firm on the conditional and unconditional conservatism in firms accepted in Tehran Stock Exchange. Methodology: To calculate the conditional and unconditional conservatism we have used models posed by Ball, Shivakumar, Guili, and Hyne. In this research 90 firms accepted in Tehran Stock Exchange were investigated during the time period between the years 2007 and 2011. To test the hypotheses we have used the linear regression model. Results: The findings of the research show that the size of an auditing firm does not have a meaningful effect on conditional and unconditional conservatism, but the experience of an auditing firm affects conditional and unconditional conservatism meaningfully and positively. Conclusion: This showed that the more experienced auditor in an employer company will deserve a more conservativeness compared to those companies in which the incumbency period has been less than 4 years (less experienced).References
Azizkhani, M., Monroe, G., & Shailer, G. 2007. Auditor tenure and perceived credibility of financial reporting. School of Accounting and Business Information Management, the Australian National University, Canberra, ACT, Australia, 1: 1-47.
Ball, R., & Shivakumar, L. 2005. ”Earning quality in UK private firms". Journal of Accounting and Economics, 39 (1): 83-128.
Balsam, S., Krishnan, J., & Yang, J. 2003. "Auditor industry specialization and earnings quality", Auditing: A Journal of Practice & Theory, 22 (2): 71-97.
Basu, S., Hwang, L., & Jan, C. 2001. ‘Differences in conservatism between Big Eight and Non-Big Eight auditors’, working paper, Baruch College.
Beaver, W., & Ryan, A. 2004."Biases and lags in Book value and their effects on the Abilty of the Book-to-Market Ratio to predict Book return on Equity".journal of Accounting Research, 38: 114–138.
Cano-Rodríguez, M. 2010. Big auditors, private firms and accounting conservatism: Spanish evidence. European Accounting Review, 19(1): 131−159.
Chandra, D., Charles, W. 2004. Income conservatism in the U.S .Technology Sector, available from: http://www.ssrn.com/abstract=48506 [February 02, 2008].
Chen, C., Lin, C., & Lin, Y. 2004. "Audit partner tenure, audit firm tenure and discretionary accruals; does long auditor tenure impair earning quality?" Working paper, Hong Kong University of Science and Technology.
Chung, H. 2004. "Selective Mandatory Auditor Rotation and Audit Quality: an Empirical Investigation of Auditor Designation Policy in Korea". Working paper.
DeAngelo, L. 1981. “Auditor Size and Audit Quality”, Journal of Accounting and Economics, 3(3): 183- 199.
Givoly, D., Hayn, C., & Natarajan, A. 2002."Measuring Reporting Conservatism". The Accounting Review Forthcoming, 1: 24-31.
Gul, F., Bikki, L., Jaggi, G., Krishnan, V. 2007. “Auditor Independence: Evidence on the Joint Effects of Auditor Tenure and Nonaudit Fees”. Auditing: A Journal of Practice & Theory. 26 (2): 117-142.
Hamilton, J., Ruddock, C., Stokes, D., & Taylor, S. 2005. "Audit partner rotation, earnings quality and earnings conservatism". Working paper, University of Technology, Sydney, and University of New South Wales.
Hassas-e-Yeghaneh, Y., & Pakizeh, K. 2007. "The quality of financial reporting, auditing and corporate governance", Monthly Journal of Accounting, 182: 40-47.
Hassas-e-Yeghaneh, Y., & Shahryari, A. 2010. "Studying the relationship between ownership concentration and conservatism in Tehran Stock Exchange", Journal of Financial Accounting Researches, 2nd. Year, 2: 77- 94.
Karami, G., Bazrafshan, A. 2009. "Studying the auditor's incumbency and reporting conservative profits", The Quarterly Journal of Stock Exchange, Year 2, 7: 55-80.
Lafond, R., & Watts, R. 2008." The Information Role Conservative Financial Statemen ". Working Paper New York University.
Mayers, J., Mayers, L., & Omer, T. 2003. “Exploring the Term of the Auditor-Client Relationship and the Quality of Earnings:A Case for Mandatory Auditor Rotation? ”.Accounting Review, 78: 779-800.
Namazi, M., Bayzadi, A., & Jabbarzade-e-Kangarloee, S. 2010. "Studying the relationship between auditing quality and earnings management", Journal of Accounting and Auditing Studies, Year 2, 9: 4-22.
Raee, R., & Khosravi, A. 2007. "The identification of pricing model of capital assets regarding the undesirable risk in firms accepted in Tehran Stock Exchange", Journal of Humanities and Sociology Researches, 1: 45-62.
Ran Zijl, T., Khairul Anuar, K., & Keitha, D. 2010. ”Auditor tenure,non.Audit services and earning conservatism: Evidence from malaysis, Working paper series
Wolk, H., Dodd, L., & Tearney, M. 2004."Accounting Theory: A conceptual and Institutional Approach". Journal of Accounting and Economics, 45: 27– 54.
Zengin, Y., & Ozkan, S. 2010. “Audit quality and earnings management in interim financial reports”. www.SSRN.com
Zhou, J., & Elder, R. 2004. “Audit Quality and Earnings Management by Seasoned Equity Offering Firms”. Asia-Pacific Journal of Accounting and Economics. 11(2),95 -120.
Zimmerman, J. 1983. Taxes and firm size, Journal of Accounting and Economics, 5: 119-149.
