The Impact of Audit Reports on Financial Information Content
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International Journal of Economics and Financial
Issues
ISSN: 2146-4138
available at http: www.econjournals.com
International Journal of Economics and Financial Issues, 2017, 7(3), 304-308.
International Journal of Economics and Financial Issues | Vol 7 • Issue 3 • 2017304
The Impact of Audit Reports on Financial Information Content
Alireza Vaziri1*, Kayhan Azadi2
1Department of Accounting, Islamic Azad University, Rasht Branch, Rasht, Iran, 2Department of Accounting, Islamic Azad
University, Rasht Branch, Rasht, Iran. *Email: ARV.vaziry@gmail.com
ABSTRACT
Investors fund in order to access to more wealth. Financial information of companies is one of the important factors considered by investors in making
decision. According to accounting standards, the major goal of providing forms and financial reports is providing useful information about financial
position and the results of operations of commercial unit for user decision making. Several factors influence on financial information provided by
companies. One of these factors can be audit reports. Therefore, major goal of this research is investigating the effects of audit reports on financial
information reported in Tehran Stock Exchange. Method of this research is practical in goal and is descriptive in type. The types of auditor and auditor’s
assessment (audit organizations or institutions) were proposed as independent variables and financial information (stocks return) was proposed as
dependent variable. In this research 117 accepted companies in Tehran Stock Exchange during 2009-2014 were selected as statistical sample. Research
hypotheses were tested by fitting of linear regression models of combined data. The results showed that the type of auditor and auditor’s assessment
have a significant relationship with stocks return (financial information).
Keywords: The Type of Auditors, Stocks Return, The Type of Auditor’s Assessment, Tehran Stock Exchange
JEL Classifications: E44, M42
1. INTRODUCTION
The existence of vivid and reliable financial information that is
the product of a comprehensive reporting system is considered
as the main elements of assessment of situation and function of
a company and decision-making about the securities exchange
issued by that. In the recent professional societies, from the
perspective of users, the information is considered to be reliable
that an independent organization on the company’s reporting
process and at the gravity center of this process, i.e., to monitor
the financial statements. An example of such independent
organizations are audit firms that mainly in the business units,
the internal control structure of the reporting unit and the final
product of the internal control system, the financial statements are
reviewed and monitored (Hassas and Jafari, 2010). On the other
hand, in the commercial world, transactions and economic events
are documented via assembling evidence by accountants and
recorded in the accounts. The results of transactions and economic
events are available to interested parties out of extracted accounts
and within framework of financial reports. However, the biased
information, misleading, irrelevant or incomplete may cause the
wrong decision-making. Complexity of economics’ issues and
the process of converting them into information also cause the
possibility of appearance of errors in processing information and
as a result, it makes trouble to recognize the quality on presented
reports for the reports’ users. On the other hand, conflict of interest
between producers of fiscal statements and users from them causes
a concern for users. Besides, the lack of direct access of users and
their distances to information producer causes uncertainty and
ambiguity of the financial reports’ users to them. In this situation
the audit is formed on the basis of the above needs and it is a tool
to eliminate the doubt and ambiguity of financial reporting by
confirming their quality. It should be noted that in some conditions
in reporting environment, allowing direct assessment of data
quality by users is very difficult. Despite these circumstances, it
makes indirect evaluation of information quality very necessary.
This is a situation where there is justifying the need for auditing
by independent auditors and making opinion, could be due to a
conflict of interest, important economic consequences, complexity
and lack of direct access. Auditors validate presented financial
information and users can be sure that the using information enjoys
good quality (Hajiha and FeizAbadi, 2013). According to this, the
Issues
ISSN: 2146-4138
available at http: www.econjournals.com
International Journal of Economics and Financial Issues, 2017, 7(3), 304-308.
International Journal of Economics and Financial Issues | Vol 7 • Issue 3 • 2017304
The Impact of Audit Reports on Financial Information Content
Alireza Vaziri1*, Kayhan Azadi2
1Department of Accounting, Islamic Azad University, Rasht Branch, Rasht, Iran, 2Department of Accounting, Islamic Azad
University, Rasht Branch, Rasht, Iran. *Email: ARV.vaziry@gmail.com
ABSTRACT
Investors fund in order to access to more wealth. Financial information of companies is one of the important factors considered by investors in making
decision. According to accounting standards, the major goal of providing forms and financial reports is providing useful information about financial
position and the results of operations of commercial unit for user decision making. Several factors influence on financial information provided by
companies. One of these factors can be audit reports. Therefore, major goal of this research is investigating the effects of audit reports on financial
information reported in Tehran Stock Exchange. Method of this research is practical in goal and is descriptive in type. The types of auditor and auditor’s
assessment (audit organizations or institutions) were proposed as independent variables and financial information (stocks return) was proposed as
dependent variable. In this research 117 accepted companies in Tehran Stock Exchange during 2009-2014 were selected as statistical sample. Research
hypotheses were tested by fitting of linear regression models of combined data. The results showed that the type of auditor and auditor’s assessment
have a significant relationship with stocks return (financial information).
Keywords: The Type of Auditors, Stocks Return, The Type of Auditor’s Assessment, Tehran Stock Exchange
JEL Classifications: E44, M42
1. INTRODUCTION
The existence of vivid and reliable financial information that is
the product of a comprehensive reporting system is considered
as the main elements of assessment of situation and function of
a company and decision-making about the securities exchange
issued by that. In the recent professional societies, from the
perspective of users, the information is considered to be reliable
that an independent organization on the company’s reporting
process and at the gravity center of this process, i.e., to monitor
the financial statements. An example of such independent
organizations are audit firms that mainly in the business units,
the internal control structure of the reporting unit and the final
product of the internal control system, the financial statements are
reviewed and monitored (Hassas and Jafari, 2010). On the other
hand, in the commercial world, transactions and economic events
are documented via assembling evidence by accountants and
recorded in the accounts. The results of transactions and economic
events are available to interested parties out of extracted accounts
and within framework of financial reports. However, the biased
information, misleading, irrelevant or incomplete may cause the
wrong decision-making. Complexity of economics’ issues and
the process of converting them into information also cause the
possibility of appearance of errors in processing information and
as a result, it makes trouble to recognize the quality on presented
reports for the reports’ users. On the other hand, conflict of interest
between producers of fiscal statements and users from them causes
a concern for users. Besides, the lack of direct access of users and
their distances to information producer causes uncertainty and
ambiguity of the financial reports’ users to them. In this situation
the audit is formed on the basis of the above needs and it is a tool
to eliminate the doubt and ambiguity of financial reporting by
confirming their quality. It should be noted that in some conditions
in reporting environment, allowing direct assessment of data
quality by users is very difficult. Despite these circumstances, it
makes indirect evaluation of information quality very necessary.
This is a situation where there is justifying the need for auditing
by independent auditors and making opinion, could be due to a
conflict of interest, important economic consequences, complexity
and lack of direct access. Auditors validate presented financial
information and users can be sure that the using information enjoys
good quality (Hajiha and FeizAbadi, 2013). According to this, the
![The Impact of Audit Reports on Financial Information Content_1](/_next/image/?url=https%3A%2F%2Fdesklib.com%2Fmedia%2Fimages%2Ffn%2F8bd3b54eb4df4888b05479a2a4c1b532.jpg&w=3840&q=10)
Vaziri and Azadi: The Impact of Audit Reports on Financial Information ContentInternational Journal of Economics and Financial Issues | Vol 7 • Issue 3 • 2017 305
current research is a review of subjective literature of audit report
and the content of reported financial information will influence on
listed companies in Tehran’s Stock Exchange. Then, the impact
of audit report and content of reported financial information and
of companies listed on Tehran Stock Exchange will be discussed.
2. PROBLEM STATEMENT
Today shareholders can use audited financial statements as an
important tool to notice how to operate their assets and ensure the
accuracy of managers’ performance. The usefulness of content of
numbers and submitted figures in the financial statements that is
the final product of accounting is the most controversial issue of
subjects in scientific meetings. In general, the first and foremost
goal is to provide financial statements. From the information
reported to investors and creditors and other current and potential
clients for investment decisions, accreditation and other similar
decisions become beneficial. One of the most useful accounting
information is efficient figure of shares. On the other hand, the
possibility of bad intention in setting and preparation of the
financial statements by the board, led to the need for the audit
profession and individuals called auditor to be felt. Existence of
vivid and comparable financial information is one of the main
pillars to respond the executives and essential needs of economic
decision-making. Done researches show that more disclosure and
transparency will follow many advantages for companies: Long-
term investment by the investors, improving access to new capital,
less capital expenditures, credible and responsible management
and ultimately higher stock price (Banimahd et al., 2014).
In addition, to take the advantage of financial information in
decision-making of mentioned groups, that accounting targets
and financial reporting require to reveal related information to
appropriate species and access this information become feasible for
everyone. Increase of disclosure about information for users who
aren’t able to determine the company future prospects is useful and
this advantage is through reducing the risk of misallocation of their
capital. Moreover, one of the crucial conditions for the confidence
of investors and creditors in constructive economic activity
is sufficient information to make decisions about purchasing,
holding or selling stock and assess the performance of companies’
managers (Hasani and Hoseini, 2010).
Auditor’s report on the process of decision-making by users
of financial statements is considered as one of the most useful
tools. When auditors is not to make an acceptable opinion on the
information given in financial statements, his opinion validate the
financial statements and information contained in the financial
statements remain unchanged, or to be more precise, the registered
information will be approved. If qualified opinion a failed or lacks
of opinion without an impartial financial expert questions all or
part of the information contained in the financial statements.
The effect of the auditing profession’s activities and its role in
the stock returns of companies listed in Tehran Stock Exchange
and the investment process relies on the information provided by
companies’ managers as an evaluator reference and it is judged by
the auditor. Through this result potential and actual shareholders
are reflected (Jamei et al., 2012).
Auditing profession has effective role on improving
informational system and inspiring confidence of each country’s
financial reports. With the increase in the number of users
of the auditor’s report as customers of public goods, has led
the quality of auditors’ work to be paid attention. Quality of
auditors’ work and their remark, can improve the country’s
financial informational system and finally making decision
for an optimal economy. In the recent years the formation of
CPAs, (Certified Public Accountants) a part of the activities
of audit organization has been assigned to private institutions
of its community (Moradzadeh and Rahmannejad, 2011). The
content of accounting information and auditor’s opinion and its
role in decision-making of readers, especially investors in the
stock exchange were the subjects that has been investigated and
studied over the past four decades in the markets of Australia,
Canada, England, France, Spain and the Islamic Republic of
Iran. Now the main question is whether the type of the auditor
and the auditor’s opinion has an impact on stock’s returns?
3. EXPRESSING MODELS AND VARIABLES
OF THE RESEARCH
1. Yit = β0 + β1DQOit + β2Sizeit + β3Leverageit + β4Growthit
+ β5ROAit + β6ROEit + εit
2. Yit = β0 + β1DUOit + β2Sizeit + β3Leverageit + β4Growthit
+ β5ROAit + β6ROEit + εit
3.1. Financial Information Content (The Dependent
Variable)
The content of financial information is called to the information
that is effective on users’ decisions on assessment of past events,
present and future or assessment and correction of their past
evaluation (Dianati et al., 2012).
3.2. Stock Returns (The Dependent Variable)
It is called to the benefit and profit from an investment. In other
words, return is the ratio of total revenue (loss) from investments
in a specific period to the quantity of the capitals that have been
applied to earn this income initially in the same period and has
been consumed (Robu and Robu, 2015).
3.3. Audit Report (Independent)
The main purpose of an audit is that the auditor declares a
professional concept to the integrity of financial statements
with reviewing the results of the investigation of the registers
and documents that the examined final financial statements
of the institution rely on them, and regarding the information
and different explanation acquired during the process of the
verification. The statement in the report entitled “Audit report” or
the auditor’s report and auditors’ report as the person or authority
who has assigned auditing to the auditor, is presented that may be
issued in two forms either short or detailed in appropriate terms
(Hajiha and Rafiei, 2014).
The auditor’s opinion (independent) auditor’s opinion is said to the
professional reporting process respecting the financial statement
(Rahimian and Hedayati, 2013).
current research is a review of subjective literature of audit report
and the content of reported financial information will influence on
listed companies in Tehran’s Stock Exchange. Then, the impact
of audit report and content of reported financial information and
of companies listed on Tehran Stock Exchange will be discussed.
2. PROBLEM STATEMENT
Today shareholders can use audited financial statements as an
important tool to notice how to operate their assets and ensure the
accuracy of managers’ performance. The usefulness of content of
numbers and submitted figures in the financial statements that is
the final product of accounting is the most controversial issue of
subjects in scientific meetings. In general, the first and foremost
goal is to provide financial statements. From the information
reported to investors and creditors and other current and potential
clients for investment decisions, accreditation and other similar
decisions become beneficial. One of the most useful accounting
information is efficient figure of shares. On the other hand, the
possibility of bad intention in setting and preparation of the
financial statements by the board, led to the need for the audit
profession and individuals called auditor to be felt. Existence of
vivid and comparable financial information is one of the main
pillars to respond the executives and essential needs of economic
decision-making. Done researches show that more disclosure and
transparency will follow many advantages for companies: Long-
term investment by the investors, improving access to new capital,
less capital expenditures, credible and responsible management
and ultimately higher stock price (Banimahd et al., 2014).
In addition, to take the advantage of financial information in
decision-making of mentioned groups, that accounting targets
and financial reporting require to reveal related information to
appropriate species and access this information become feasible for
everyone. Increase of disclosure about information for users who
aren’t able to determine the company future prospects is useful and
this advantage is through reducing the risk of misallocation of their
capital. Moreover, one of the crucial conditions for the confidence
of investors and creditors in constructive economic activity
is sufficient information to make decisions about purchasing,
holding or selling stock and assess the performance of companies’
managers (Hasani and Hoseini, 2010).
Auditor’s report on the process of decision-making by users
of financial statements is considered as one of the most useful
tools. When auditors is not to make an acceptable opinion on the
information given in financial statements, his opinion validate the
financial statements and information contained in the financial
statements remain unchanged, or to be more precise, the registered
information will be approved. If qualified opinion a failed or lacks
of opinion without an impartial financial expert questions all or
part of the information contained in the financial statements.
The effect of the auditing profession’s activities and its role in
the stock returns of companies listed in Tehran Stock Exchange
and the investment process relies on the information provided by
companies’ managers as an evaluator reference and it is judged by
the auditor. Through this result potential and actual shareholders
are reflected (Jamei et al., 2012).
Auditing profession has effective role on improving
informational system and inspiring confidence of each country’s
financial reports. With the increase in the number of users
of the auditor’s report as customers of public goods, has led
the quality of auditors’ work to be paid attention. Quality of
auditors’ work and their remark, can improve the country’s
financial informational system and finally making decision
for an optimal economy. In the recent years the formation of
CPAs, (Certified Public Accountants) a part of the activities
of audit organization has been assigned to private institutions
of its community (Moradzadeh and Rahmannejad, 2011). The
content of accounting information and auditor’s opinion and its
role in decision-making of readers, especially investors in the
stock exchange were the subjects that has been investigated and
studied over the past four decades in the markets of Australia,
Canada, England, France, Spain and the Islamic Republic of
Iran. Now the main question is whether the type of the auditor
and the auditor’s opinion has an impact on stock’s returns?
3. EXPRESSING MODELS AND VARIABLES
OF THE RESEARCH
1. Yit = β0 + β1DQOit + β2Sizeit + β3Leverageit + β4Growthit
+ β5ROAit + β6ROEit + εit
2. Yit = β0 + β1DUOit + β2Sizeit + β3Leverageit + β4Growthit
+ β5ROAit + β6ROEit + εit
3.1. Financial Information Content (The Dependent
Variable)
The content of financial information is called to the information
that is effective on users’ decisions on assessment of past events,
present and future or assessment and correction of their past
evaluation (Dianati et al., 2012).
3.2. Stock Returns (The Dependent Variable)
It is called to the benefit and profit from an investment. In other
words, return is the ratio of total revenue (loss) from investments
in a specific period to the quantity of the capitals that have been
applied to earn this income initially in the same period and has
been consumed (Robu and Robu, 2015).
3.3. Audit Report (Independent)
The main purpose of an audit is that the auditor declares a
professional concept to the integrity of financial statements
with reviewing the results of the investigation of the registers
and documents that the examined final financial statements
of the institution rely on them, and regarding the information
and different explanation acquired during the process of the
verification. The statement in the report entitled “Audit report” or
the auditor’s report and auditors’ report as the person or authority
who has assigned auditing to the auditor, is presented that may be
issued in two forms either short or detailed in appropriate terms
(Hajiha and Rafiei, 2014).
The auditor’s opinion (independent) auditor’s opinion is said to the
professional reporting process respecting the financial statement
(Rahimian and Hedayati, 2013).
![The Impact of Audit Reports on Financial Information Content_2](/_next/image/?url=https%3A%2F%2Fdesklib.com%2Fmedia%2Fimages%2Fzx%2Fd30eb0a785ce4c01b350384565af7566.jpg&w=3840&q=10)
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