Auditor turnover, disclosure of key audit issues and financial reporting quality

Subject Areas : Accounting

Zohreh Hajiha ¹ , Heidar Alizadeh ²

1 - Department of Accounting, South Tehran Branch, Islamic Azad University, Tehran, Iran.
2 - Department of Accounting, Kish International Branch, Islamic Azad University, Kish Island, Iran.

Received: 2023-12-01 Published : 2024-12-23

Keywords: Auditor Turnover, Disclosure of Audit Key Issues, Quality of Financial Reporting,

Abstract :

Purpose: The fundamental reason and motive prompting companies to enter the stock market is to enhance their capital and to convert part of the founders’ and other shareholders’ wealth into cash in the near future. Accordingly, the purpose of this study is to examine auditor rotation, the disclosure of key audit matters, and the quality of financial reporting.

Methodology: This research considers all firms listed on the Tehran Stock Exchange from the beginning of the Iranian year 1396 to the end of 1401 (approximately 2017–2022 in the Gregorian calendar) as its statistical population, comprising 454 companies in total. After imposing selection criteria, 162 firms remained as the final sample. We employed multivariate regression analysis to test the research hypotheses, using Excel and EViews software for data analysis.

Findings: The results indicate that there is no significant relationship between auditor rotation and financial reporting quality, measured by performance-adjusted discretionary accruals. The relevant hypothesis is rejected at the 95% confidence level, confirming no meaningful association between auditor rotation and financial reporting quality. Moreover, no significant relationship was found between audit quality and financial reporting quality as measured by performance-adjusted discretionary accruals. However, in two other scenarios, the findings suggest that an increase in auditor rotation leads to an improvement in financial reporting quality.

Originality / Value: Based on the findings of this study, investors, shareholders, and analysts should pay particular attention to firms that have changed their auditor when evaluating financial statements. The results demonstrate that auditor rotation can lead to enhancements in the quality of financial reporting.

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