The effect of profit management on the auditor's opinion in companies listed on the Tehran Stock Exchange

Dissertation for Master's Degree (M.A)

Accounting

Abstract

Investigating the effect of profit management on the auditor's opinion in companies listed on the Tehran Stock Exchange

Abstract:

Audit is the process of ensuring the reliability and relevance of financial statement information. The existence of conflict of interest between shareholders and managers is of particular importance to Audit gives to resolve this conflict. Auditors' report is considered as one of the useful information in the decision-making process of users of financial statements, and one of the ways to control profit management is auditing. In this way, a bridge of communication between auditors' findings and people outside and inside the company is created in the form of audit opinion, which plays an important role in warning users of financial statements to recognize the problems facing companies. Therefore, it can be expected that there is a meaningful relationship between profit management and the type of auditors' opinion. 750 companies admitted to the Tehran Stock Exchange during the period 1386-1391 were selected as a sample. And in order to test the research hypotheses, logistic regression was used. The results show that there is a positive relationship between profit management and conditional comments and a negative relationship between profit management and acceptable comments. Also, there is a positive relationship between negative accruals and acceptable comments.

Keywords: profit management, audit opinion, discretionary accruals

Introduction

Fundamental changes in Iran's economy in the past years on the one hand and the growth and development of economic foundations along with the complexity of business transactions and information systems on the other hand, have made the need for relevant and reliable information for decision making in various fields more visible. Financial reporting as the main means of information transmission. Finance plays an important role for investors in this regard.

Accounting profit and its related components are among the most important information that are considered by people when making decisions. Although the accounting profit reported on an accrual basis provides a more accurate assessment of the business unit's performance and its financial status, but due to the existence of conflicts of interest between managers and investors and the existence of some inherent limitations of accounting, including the inadequacy in the estimation process and the possibility of using multiple accounting methods by the company Profit management is provided by managers, for this reason the reliability and usefulness of accruals has been strongly doubted in the accounting literature. Managers use different methods for profit management. One of these methods is the management of accruals. Through crediting the financial statements, the reliability of the reported information is increased and agency costs are reduced. This practice is done in the framework of a systematic process by collecting the necessary evidence and documents and checking the managers' claims that are presented in the form of financial statement information, and commenting on the reliability of the information. Therefore, in this research, an attempt has been made to examine the effect of profit management on the type of auditor's opinion. First, the main problem of the research is stated, then the importance and necessity of the research is explained, and then the basic objectives of the research, the research questions and hypotheses, the research model, the newness and innovation of the research, the scope of the research and the research method are discussed, and at the end, the key words and specialized terms of the research are defined. published by companies has reduced, but many users (investors and creditors) believe that financial reports published by companies play an important role in their decision-making. Audited financial statements are the basis of companies' information that is set for public use, because users of unaudited financial statements are affected by company fraud and scandals. Come.Therefore, the auditing of financial statements is proposed by the users. On the other hand, managers tend to report the results of their company's performance and financial status favorably. As a result of this practice, the asymmetry of information between the company and the users of its information results. Issues such as profit management, adjustment and re-presentation of financial statements and reporting distortions reduce the quality of financial reports, and its repetition ultimately leads to a decrease in the share price. Therefore, it is clear that independent auditors play a key supervisory role. They play a role in ensuring the accuracy of accounting numbers and minimizing agency costs resulting from managers' opportunistic motives. In fact, it can be said that audited financial statements, the validity of which is the audit opinion, are the final output of the relationship between management and auditors.

Therefore, without a doubt, auditing is a process of ensuring the reliability and relevance of financial statement information. The existence of a conflict of interest between shareholders and managers gives special importance to auditing to resolve this conflict. As an efficient mechanism, it gives the shareholders the assurance that the managers in the company have acted in line with the interests of the shareholders or not? Therefore, the audit work is to reassure the shareholders and other interested parties who are parties to the contract with the company. Tehran has become a common phenomenon. This issue can overshadow the auditor's professional power and independence and bring adverse consequences.

On the other hand, accounting regulations allow managers to influence financial reports by choosing accepted methods. These policies help to manage the reported profits and better reflect the company's economic status. It accumulates and makes it difficult to achieve the goals of the future periods, so that managers are gradually forced to choose more aggressive policies, and keep themselves in this game; of course, the implementation of these policies can end in fraud.

According to the above, and since the auditors' report is considered as one of the useful information in the decision-making process of the users of the financial statements, and one of the ways to control the profit management, the audit In this way, a bridge of communication between auditors' findings and people outside and inside the company is created in the form of audit opinion, which plays an important role in warning users of financial statements to recognize the problems facing companies. Therefore, in this research, we seek to investigate and investigate the effect of profit management on the auditor's opinion. It is as follows:

Does earnings management affect the type of auditor's opinion?

Based on the independent variables (absolute value of optional accrual items, positive optional accrual items and negative optional accrual items), the main question is divided into the following three sub-questions:

Does the absolute value of optional accrual items affect the type of auditor's opinion (acceptable or conditional)?

Are the items Does a positive discretionary accrual affect the type of auditor's opinion (acceptable or conditional)?

Do negative discretionary accruals affect the type of auditor's opinion (acceptable or conditional)?

1-4 The importance and necessity of research

Fundamental changes in Iran's economic environment due to the generalization of the ownership of economic enterprises, financing through public participation and the privatization of government sectors and covered enterprises It has become necessary to have financial information in order to make optimal economic decisions. The financial information needed by investors as the main users of information is mainly provided through the publication of financial statements by the management of the business unit. The main goal of financial reporting is to provide information needed by investors in making economic decisions, and in order to make optimal economic decisions, investors need reliable information in decision making. Most of these investors use the reported profit as a basis for decision making. do