Examining the Effect of the Type of Audit Report on Investors' Behavior

Subject Areas : Ethics and accounting

Fatemeh Safari ¹ , Fereydun Rahnama Roodposhti ^{2 *} , Hamdreza Vakilifard ³ , Ghodratollah Talebnia ⁴

1 - PhD. student, Department of Accounting, Science and Research Branch, Islamic Azad University, Tehran, Iran.
2 - Professor, Department of Accounting, Science and Research Branch, Islamic Azad University, Tehran, Iran
3 - Associate Professor, Department of Accounting, Science and Research Branch, Islamic Azad University, Tehran, Iran
4 - Associate Professor, Department of Accounting, Science and Research Branch, Islamic Azad University, Tehran, Iran

Received: 2023-08-09 Accepted : 2023-09-30 Published : 2023-12-23

Keywords: Audit report, Investor behavior, Information reporting,

Abstract :

Purpose: Auditing is an integral part of the economic information reporting process, enabling users to make informed judgments and decisions. The increasing growth and complexities of society also expand the need for auditing as a part of the reporting process. Therefore, the aim of this study is to investigate the impact of the type of audit report on investors' behavior. Method: This study was conducted on 220 experts, investment managers, regular investors, and auditors who were randomly selected in 2021. To analyze the data and test the research hypotheses, a structural equation model was employed with the assistance of SmartPLS software. Findings: Audit reports can impact stock prices for two main reasons. Firstly, the audit report may contain information that influences the estimation of future cash flow amounts and risks. Any data that could prompt a revision of these elements is linked to stock prices. Secondly, the audit report may provide essential details about the company's operational continuity (e.g., the audit report on operational continuity). The report should consistently mirror the auditor's access to internal information like projected data and management strategies, and the auditor's reporting choices disclose some confidential information. Conclusion: The type of audit report significantly influences investors' rational behavior. When making investment decisions, investors prioritize logic and rationality over emotions.

References:

آزاد، عبداله؛ کاظمی، محبوبه (1392). رابطه بین بندهای پس از اظهارنظر در گزارش حسابرس و تجدید ارائه صورت‌های مالی. در: یازدهمین همایش ملی حسابداری، دانشگاه فردوسی مشهد.
انصافی، زینب (1394). بررسی رابطه توانایی مدیریت با حق الزحمه حسابرسی و اظهارنظر مشروط حسابرس. پایان‌نامه کارشناسی ارشد. دانشگاه فردوسی مشهد.
بنی مهد، بهمن؛ مشهدی قره قیه، هادی؛ فرقاندوست حقیقی، کامبیز؛ مرادزاده فرد، مهدی (1402). رابطه میان خرید اظهارنظر حسابرس و تغییر شریک حسابرسی: شواهدی از شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران. بورس اوراق بهادار، 15(57)، ص224-197.
عباس‌زاده، محمدرضا؛ سمائی رهنی، سعید؛ خلیلیان موحد، علی؛ مشتاق، فرشته (1396). تأثیر وضعیت و کیفیت گزارش حسابرس بر حجم معاملات شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران. پژوهش‌های تجربی حسابداری، 6(23)، ص80-63.
نمازی، محمد؛ بایزیدی، انور؛ جبارزاده، سعید (1390). بررسی رابطه بین کیفیت حسابرسی و مدیریت سود شرکت‌های پذیرفته شده در بورس اوراق بهادار تهران. تحقیقات حسابداری و حسابرسی، 3(9)، ص21-4.
وکیلی‌فرد، حمیدرضا؛ فروغ‌نژاد، حیدر؛ خوشنود، مهدی (1392). ارزیابی رفتار سرمایه‌گذاران در بورس اوراق بهادار تهران با روش فرایند تحلیل شبکه‌ای. مدیریت دارایی و تأمین مالی، 1(2)، ص19-34.
ولیزاده لاریجانی، اعظم؛ حسنی، فهیمه (1402). چرخش مدیر حسابرسی داخلی؛ کیفیت گزارشگری مالی و زمان رسیدگی حسابرس مستقل. بررسی‏‌های حسابداری و حسابرسی، 30(1)، ص208-191.
Al‐Thuneibat, A.A., Khamees, B.A. & Al‐Fayoumi, N.A. (2008). The effect of qualified auditors' opinions on share prices: evidence from Jordan. Managerial Auditing Journal, 23(1), p. 84-101.
Bakar, N.B.A., Rahman, A.R.A. & Rashid, H.M.A. (2005). Factors influencing auditor independence: Malaysian loan officers' perceptions. Managerial Auditing Journal, 20(8), p. 804-822.
Ball, R. & Brown, P. (1968). An empirical evaluation of accounting income numbers. Journal of accounting research, 6(2), p.159-178.
De Carvalho, P.V., Ferrão, J., Alves, J.S. & Sarmento, M. (2023). The informational value contained in the different types of auditor’s opinions: Evidence from Portugal. Cogent Economics & Finance, 11(1), p. 2162688.
DeAngelo, L.E. (1981). Auditor size and audit quality. Journal of accounting and economics, 3(3), p.183-199.
Fama, E.F. (1970). Efficient capital markets: A review of theory and empirical work. The journal of Finance, 25(2), p. 383-417.
Hsieh, C.C., Hui, K.W. & Zhang, Y. (2016). Analyst report readability and stock returns. Journal of Business Finance & Accounting, 43(1-2), p. 98-130.
Jegadeesh, N. & Titman, S. (1993). Returns to buying winners and selling losers: Implications for stock market efficiency. The Journal of finance, 48(1), p. 65-91.
Jensen, M. & Meckling, W.H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3, p. 305-360.
Lee, H.L. & Lee, H. (2013). The value relevance of summarized accounting information and audit quality. In: Second International Conference of the Japanese Accounting Review (pp. 259-286).
Livnat, J. & Zarowin, P. (1990). The incremental information content of cash-flow components. Journal of accounting and Economics, 13(1), p. 25-46.
Mautz, R.K. & Sharaf, H.A. (1961). The philosophy of auditing. (No Title).
Menon, K. & Williams, D.D. (2010). Investor reaction to going concern audit reports. The Accounting Review, 85(6), p. 2075-2105.
Myers, J.N., Myers, L.A. & Omer, T.C. (2003). Exploring the term of the auditor‐client relationship and the quality of earnings: A case for mandatory auditor rotation? The accounting review, 78(3), p. 779-799.
Penman, S.H. & Yehuda, N. (2009). The pricing of earnings and cash flows and an affirmation of accrual accounting. Review of Accounting Studies, 14, p. 453-479.
Sloan, R.G. (1996). Do stock prices fully reflect information in accruals and cash flows about future earnings? Accounting review, 71(3), p. 289-315.
Walker, M. (2003). Principal/agency theory when some agents are trustworthy. Accounting and Finance Working Paper, Manchester: Manchester Business School, Manchester University.
Yulianti, Y., Zarkasyi, M.W., Suharman, H. & Soemantri, R. (2024). Effects of professional commitment, commitment to ethics, internal locus of control and emotional intelligence on the ability to detect fraud through reduced audit quality behaviors. Journal of Islamic Accounting and Business Research, 15(3), p. 385-401.