• Register
  • Login
  • Persian

Financial Accounting Knowledge

  1. Home
  2. Investigating the impact of auditor expertise in accounting estimates on the accounting estimates intensity and management deviations

Current Issue

By Issue

By Author

By Subject

Author Index

Keyword Index

About Journal

Aims and Scope

Editorial Board

Publication Ethics

Indexing and Abstracting

Related Links

FAQ

Peer Review Process

Journal Metrics

News

Guide for Authors

Terms and Conditions

Forms

Investigating the impact of auditor expertise in accounting estimates on the accounting estimates intensity and management deviations

    Authors

    • Mohsen Rashidi 1
    • Maedeh Soumi 2
    • Milad Kazazi Goudarzi 3

    1 Associate Professor, Accounting Department, Lorestan University

    2 MSc. Stu in accounting, Faculty of Management and Economic, Lorestan University, Iran

    3 Msc.in Accounting

,

Document Type : Research Paper

10.30479/jfak.2024.19860.3171
  • Article Information
  • References
  • Download
  • How to cite
  • Statistics
  • Share

Abstract

Objective: The role of accounting estimations in the quality of financial data has become challenging nowadays and has made it difficult for managers to make reliable forecasts. The continuous use of estimates has damaged the quality of financial information. The purpose of this research is to investigate the impact of auditor expertise in accounting estimates on the accounting estimates intensity and management deviations.
Method: The subject of the study is based on the regression model of combined and logit data and in the period of 2014 to 2021, the data of 960 companies admitted to the Tehran Stock Exchange were collected and used to test the research hypotheses.
Results: The results of the first hypothesis test of the research that the intensity of accounting estimation has a positive relationship with the desire of the owner's management to reach the target profit have not been rejected. The second hypothesis of the research showed that the intensity of the accounting estimate has a positive and significant relationship with the audit fee. The third hypothesis of the research is that the audit expertise has a significant effect on the relationship between the accounting estimate intensity and the willingness of the owner's management to achieve the target profit. Finally, the significant impact of the auditor's expertise on accounting estimates on the relationship between the accounting estimates intensity and audit fees has been confirmed.
Conclusion: Based on the research result, it can be stated that the intensity of accruals leads to a change in the management approach in achieving the target profit. Therefore, the auditor's expertise in relation to accounting estimates can indicate the ability of auditors to evaluate the assumptions of the company's management, which can affect the quality of the presented report.
Contribution: In this research, by presenting a new approach to measuring the auditor's expertise, the achievement of the target profit has been described. On the other hand, the findings of this research have been potentially taken into consideration by the legislators and investors in suggesting that the auditor's expertise in accounting estimates can be effective in preventing earning management.

Keywords

  • Estimates Intensity
  • Auditor's Expertise in Estimates
  • Target Earning

Main Subjects

  • Auditing
  • XML
  • PDF 1.55 M
  • RIS
  • EndNote
  • Mendeley
  • BibTeX
  • APA
  • MLA
  • HARVARD
  • CHICAGO
  • VANCOUVER
References
 
Ahn, J., Hoitash, R., Hoitash, U. (2020). Auditor task-specific expertise: The case of fair value accounting. The Accounting Review. 95 (3), 1–32.
Alavi Tabari, S.H., Aref Manesh, Z. (2014). Examining the relationship between the expertise of the auditor industry and the delay in submitting the audit report in companies admitted to the Tehran Stock Exchange. Journal of Accounting knowledge, 14, 7-26. (In Persian).
Alexeyeva, I., Mejia Likosova, M. (2016). The impact of fair value measurement on audit fees: Evidence from financial institutions in 24 European countries. International Journal of Auditing, 20(3), 255-266.
Bartov, E., Givoly, D., Hayn, C. (2002). The rewards to meeting or beating earnings expectations. Journal of Accounting and Economics. 33 (2) , 173–204.
Barua, A., Lennox, C., Raghunandan, A. (2020). Are audit fees discounted in initial year audit engagements?. Journal of Accounting and Economics, 69(2-3), 101282.
Beasley, M. S., J. V. Carcello, D. R. Hermanson, and T. Neal. 2010. Fraudulent Financial Reporting 1998–2007: An Analysis of U.S. Public Companies. Durham, NC: COSO.
Bell, T. B., Griffin, J. B. (2012). Commentary on auditing high-uncertainty fair value estimates. Auditing: A Journal of Practice & Theory. 31(1), 147-155.
Bonner, S., Lewis., B. (1990). Determinants of auditor expertise. Journal of Accounting Research. 28,1–20.
Boone, J.P., Khurana, I.K., Raman, K.K. (2023). Accounting Estimation Intensity, Auditor Estimation Expertise, and Managerial Bias. A Journal of Accounting Horizons. 37(3, 1-28.
Bratten, B., Gaynor, L., McDaniel, L., Montague, N., Sierra, G. (2013). The audit of fair values and other estimates: The effects of underlying environmental, task, and auditor-specific factors. Auditing: A Journal of Practice & Theory. 32(1), 7–44.
Brink, A.G., Yang, L. Wier, B. (2012). The Impact of Social Pressure and Estimate Source on Auditors’ and Financial Statement Preparers’ Fair Value Estimate Choices.
Brown, L., A. Call, M. Clement, and N. Sharp. 2015. Inside the “black box” of sell-side financial analysts. Journal of Accounting Research, 53 (1): 1-47.
Burgstahler, D., Dichev, I. (1997). Earnings management to avoid earnings decreases and losses. Journal of Accounting and
Economics. 24 (1), 99–126.
Campa, D., Cao, T., Donnelly, R. (2019). Asset disposal as a method of real earnings management: Evidence from the UK. Journal of  Abacus, 55(2), 306-332.
Campa, D., Camacho-Miñano, M. (2015). The impact of sme’s prebankruptcy financialdistresson earnings management tools. Journal of International Review of Financial Analysis, 42(3), 222-234.
Cannon, N. H., Bedard, J. C. (2016). Auditing challenging fair value measurements: Evidence from the field. The Accounting Review. 92(4), 81-114.
Cannon, N., Bedard, J. (2017). Auditing challenging fair value measurements: Evidence from the field. The Accounting Review, 92 (4): 81–114.
Cannon, N., Christensen, B, T.O. Wood., D. (2014). Complex fair value measurements and material weaknesses: It’s not all bad news.
Cho, M., Kwon, S. Y., & Krishnan, G. V. (2021). Audit fee lowballing: Determinants, recovery, and future audit quality. Journal of Accounting and Public Policy, 40(4).
Christensen, B., Glover, S., Wood, D. (2012). Extreme estimation uncertainty in fair value estimates: Implications for audit. assurance. Auditing: A Journal of Practice & Theory. 31 (1), 127–146.
Cohen, D. A., Dey, A., Lys, T. Z. (2011). Real and accrual-based earnings management in thepre-and post-Sarbanes-Oxley periods. Journal of the Accounting Review, 83(3), 757-787.
DeAngelo, L. (1981). Auditor Size and Audit Quality. Journal of Accounting and Economics, 3, 183-199.
DeFond, M., Zhang, J. (2014). A Review of Archival Auditing Research. Journal of Accounting and Economics, 58(2-3), 275–326.
Degeorge, F., Patel, J., Zeckhauser, R. (1999). Earnings management to exceed thresholds. The Journal of Business. 72 (1), 1–33.
Frank, D., Obloj, T. (2014). Firm-specific human capital, organizational incentives and agency costs: Evidence from retail banking. Strategic Management Journal, 35 (9), 1279–1301.
Francis, J. R., Reichelt, K., Wang.. D. (2005). The pricing of national and city-specific reputations for industry expertise in the U.S. audit market. The Accounting Review 80 (1), 113–136.
Gal-Or, R., R. Hoitash,. Hoitash., U. (2022). Auditor expertise in mergers and acquisitions. Auditing: A Journal of Practice & Theory. 41 (4), 135–162.
Glover, S., Taylor, M., Wu, Y. J. (2017). Mind the Gap: Why Do Experts Have Differences of Opinion Regarding the Sufficiency of Audit Evidence Supporting Complex Fair Value Measurements?
Glover, S. M., Taylor, M. H., & Wu, Y. J. (2016). Current practices and challenges in auditing fair value measurements and complex estimates: Implications for auditing standards and the academy. Auditing: A Journal of Practice & Theory. 36(1), 63-84.
Griffith, E. (2018). When do auditors use specialists’ work to improve problem representations of and judgments about complex estimates? The Accounting Review. 93 (4), 177–202.
Griffith, E., Hammersley, J., Kadous, K. (2015). Audits of complex estimates as verification of management numbers: How institutional pressures shape practice. Contemporary Accounting Research. 32 (3), 833–863.
Graham, J., Harvey, C., Rajgopal, S. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics. 40 (1-3), 3–73.
Hay, D., Knechel, W., Wong, N. (2006). Audit fees: A meta-analysis of the effect of supply and demand attributes. Contemporary Accounting Research. 23 (1), 141–191.
Hassanzadeh,  R., Talkhabi, F., Fajr Biggi, M. (2015).Audit fees, an overview of factors affecting the determination of financial statement audit fees. Journal of  Official Accountant's Quarterly, 32,89-100. (In Persian).
Hassas Yeganeh, Y., Barzideh, F.,  Taghavifard, M. T., Farahmand Seyed Abadi ,M. (2016). Investigating the impact of Mandatory Audit Firm Rotation on Audit Fee and Audit Market Competition. Journal of Accounting and Auditing Review, 23(3), 333-352. (In Persian).
Hassas Yeganegh, Y,. GHasemi, M. (2006). The information content of the reserve deficit mentioned in the audit report. Journal of Accounting and Auditing Review,12(4), 21-39. (In Persian).
Hermanson, S. D., Kerler III, W. A., Rojas, J. D. (2017). An Analysis of Auditors' Perceptions Related to Fair Value Estimates. Journal of Corporate Accounting & Finance, 28(3), 18-37.
 Hosseinipour, R., Bagharpur Valashani, M. A., Salehi, M. (2017). Identification of financial and non-financial variables affecting the basis of report modification. Audit related to accounting estimates: data mining approach. Journal of audit knowledge, 17(66) 107-130. (In Persian).
Huang, C. (2017). The joint decision to manage earnings through discretionary accruals and asset sales around insider trading: Taiwan evidence. Journal of Economics and Finance, 34(3), 308-325.
Joe, J.,  Vandervelde, S., Wu., Y. (2017). Use of high quantification evidence in fair value audits: Do auditors stay in their comfort zone? The Accounting Review. 92 (5), 89–116.
Joe, J. R., Vandervelde, S. D., Wu, Y. (2014). Use of Third Party Specialists‟ Reports When Auditing Fair Value Measurements: Do Auditors Stay in their Comfort Zone? Available at SSRN.
Kaplan, S. N., Zingales, L. (1997). Do investment–cash flow sensitivitiesprovide usefulmeasures of financing constraints? Quarterly Journal of Economics. 112(1), 169–215.
Kavousi A Honarmandi Z. (2021).he effect of the auditor's expertise in the industry and the independence of the board of directors on the uncertainty in the operating cash flows of the company. The first international conference on the leap of management, economics and accounting sciences. (In Persian).
Kanagaretnam, K., Lim, C. Y., Lobo, G. J. (2010). Auditor reputation and earnings management: International evidence from the banking industry. Journal of Banking and Finance. 34, 2318-2327.
 Khodamipour, A., Saiedi Goraghani, M. (2011). Investigating the Impact of Analytical Results on Auditors' Efforts to Audit Accounting Estimates. Journal of Accounting and Auditing Research, 3(10,) 118-131. (In Persian).
Kumarasiri, J., Fisher, R. (2011). Auditors' Perceptions of Fair Value Accounting: Developing Country Evidence. International Journal of Auditing. 15(1), 66-87.
Lee, C., Park, M. S. (2013). Subjectivity in fair-value estimates, audit quality, and informativeness of other comprehensive income. Advances in accounting, 29(2), 218-231.
Lev,  B., Li, S., Sougiannis, T. (2010), The Usefulness of Accounting Estimates for Predicting Cash Flows and Earnings. Review of Accounting Studies. 15(4), 779–807.
Matsunaga, S., Park, C.  (2001). The effect of missing a quarterly earnings benchmark on the CEO’s annual bonus. The Accounting Review. 76 (3), 313–332.
Martin, R. D., Rich, J. S., Wilks, T. J. (2006). Auditing fair value measurements: A synthesis of relevant research. Accounting Horizons, 20(3), 287-303.
Moroney, R. (2007). Does industry expertise improve the efficiency of audit judgment? Auditing: A Journal of Practice & Theory. 26 (2), 69–94.
Moore, D. A., Healy, P. J. )2008(. The trouble with overconfidence.
Psychological Review, 115 (2) , 502–517.
O’Reilly, D.M., Reisch, J.T. (2002). Industry specialization by audit firms: What does academic research tell us? Ohio CPA Journal. 61(3),  42-44.
rashidi, M. (2021). Examine market competition, audit fee stickiness, and audit quality. Financial Accounting Knowledge, 8(2), 173-193. (in Persian)
rashidi, M.(2021). Role of Contractual Obligations Violations on Risk Appetite and CEO Compensation Based on Credit Status. Journal of Financial Management Strategy, 9(33) , 135-155. (In Persian).
Rahimi, M.M., Barzgari KHanghah, J., Allahyari, R. (2018). A review of the theoretical foundations of audit fees. Journal of  Research in accounting and economic sciences, 3, 43-50. (In Persian)
Reichelt, K. Wang, D. (2010). National and office-specific measures of auditor industry expertise and effects on audit quality. Journal of Accounting Research.  48 (3), 647–686.
Seidel, T. A., Simon,  C. A., Stephens, N. M. )2020(. Management bias in multiple accounting estimates. Review of Accounting Studies, 25 (1),  1–53.
Skinner, D., Sloan, R. (2002). Earnings surprises, growth expectations, and stock returns, or don’t let an earnings torpedo sink your portfolio. Review of Accounting Studies. 7 (2/3), 289–312.
Sylvia veronica, S., sidharta utama, A. (2008). Type of Earnings Management and the Effect of Ownership Strueture, Firm Size, and Corporate  Governance Practices: Evidence form Indonesia. the International Journal of Accounting, 43, 1-27.
Thibodeau, J. C. Packwood, R. (2010), A Rick-Based Approach to Achieving Audit Committee Effectiveness. Bank Accounting & Finance, 31-22.
 vaghfi, S.H.,  Kamranrad,  S.,  Baraslani, S. (2023). The Effect of Audit Fee Discount on its Compensation and the Quality of Accounting Information with an Emphasis on the Role of the Auditor's Expertise. Journal of  Professional Auditing Research, 3(9), 44-70. (In Persian)
Watts, R. Zimmerman, J. (1986), “Positive Accounting Theory”, Prentice Hall Eaglewood Cliffts.
White, G. (1970), “Discretionary Accounting Decisions and Income Normali ation”, Journal of Accounting Research, 260-274.
Yanming, C., Zhuoan, F. (2022), Do supply shocks in the audit partner labor market affect auditor choice? Evidence from a quasi-natural experiment. China Journal of Accounting Research .
    • Article View: 327
    • PDF Download: 450
Financial Accounting Knowledge
Volume 10, Issue 4 - Serial Number 39
January 2024
Pages 149-177
Files
  • XML
  • PDF 1.55 M
Share
How to cite
  • RIS
  • EndNote
  • Mendeley
  • BibTeX
  • APA
  • MLA
  • HARVARD
  • CHICAGO
  • VANCOUVER
Statistics
  • Article View: 327
  • PDF Download: 450

APA

Rashidi, M. , Soumi, M. and Kazazi Goudarzi, M. (2023). Investigating the impact of auditor expertise in accounting estimates on the accounting estimates intensity and management deviations. Financial Accounting Knowledge, 10(4), 149-177. doi: 10.30479/jfak.2024.19860.3171

MLA

Rashidi, M. , , Soumi, M. , and Kazazi Goudarzi, M. . "Investigating the impact of auditor expertise in accounting estimates on the accounting estimates intensity and management deviations", Financial Accounting Knowledge, 10, 4, 2023, 149-177. doi: 10.30479/jfak.2024.19860.3171

HARVARD

Rashidi, M., Soumi, M., Kazazi Goudarzi, M. (2023). 'Investigating the impact of auditor expertise in accounting estimates on the accounting estimates intensity and management deviations', Financial Accounting Knowledge, 10(4), pp. 149-177. doi: 10.30479/jfak.2024.19860.3171

CHICAGO

M. Rashidi , M. Soumi and M. Kazazi Goudarzi, "Investigating the impact of auditor expertise in accounting estimates on the accounting estimates intensity and management deviations," Financial Accounting Knowledge, 10 4 (2023): 149-177, doi: 10.30479/jfak.2024.19860.3171

VANCOUVER

Rashidi, M., Soumi, M., Kazazi Goudarzi, M. Investigating the impact of auditor expertise in accounting estimates on the accounting estimates intensity and management deviations. Financial Accounting Knowledge, 2023; 10(4): 149-177. doi: 10.30479/jfak.2024.19860.3171

  • Home
  • About Journal
  • Editorial Board
  • Submit Manuscript
  • Contact Us
  • Sitemap

News

Financial Accounting Knowledge, is licensed under a Creative Commons Attribution 4.0 International License (CC BY NC) .

 

Newsletter Subscription

Subscribe to the journal newsletter and receive the latest news and updates

© Journal Management System. Powered by Sinaweb