Investigating the Impact of Audit Quality on Financial Reporting Quality at Initial Public Offering

Representative problems arise as a result of conflicts of interest between managers and shareholders. Auditing is seen as an effective way to limit managers' authority in contractual relationships. In this paper, the aim is to evaluate the quality of financial reporting modeling based on audit characteristics at the time of initial public offering.

The present study is descriptive based on purpose and correlational in nature and method. Given that this research can be used in the decision-making process of investors, it is a type of applied research. For this purpose, data related to companies accepted for the first time in the Tehran Stock Exchange for the period 2006 to 2018 have been extracted and cross-sectional data regression model has been used to test research hypotheses.

The results of the research indicate that the size of the audit firm leads to a change in the quality of financial reporting. Also, the results of the second hypothesis indicate that the quality of financial reporting also changes when the level of audit quality changes.

The results of the research can be interpreted in such a way that by changing the level of interactive effect of audit quality and ranking of the audit firm according to the classification of the Society of Certified Public Accountants, the quality of financial reporting of the company will fluctuate.

Audit quality has a significant impact on the quality of financial reporting, and reviewing audit quality at the time of initial public offering can be useful in valuing companies' stocks.