Financial Distress and the Credibility of Management Earnings Forecasts: Emphasizing the moderating role of audit quality

Predicting earnings management provides information about the expected earnings of any particular company and is a key aspect of disclosure. Managers, as the most knowledgeable of the current and future status of the company, pass on their information to outsiders, thereby reducing information asymmetry. On the other hand, based on the opportunistic approach, the manager predicts optimistic profits by using disclosure policies to avoid work problems and threatening loss of management credibility as well as financial problems during the financial crisis. However, auditors with greater independence and less collusion with the manager and the ability to detect distortions are better able to monitor management reports. In a time of financial crisis, optimistic earnings forecasts are limited. Much research has been done on predicting managers 'earnings, but so far the impact of audit quality on the relationship between managers' earnings forecasting and the financial crisis has not been addressed. Therefore, the present study examines managers' earnings forecast and financial crisis with emphasis on audit quality. In this regard, a sample of 109 companies listed in the Stock Exchange during the period 2011-2017 was selected and tested. The results using multivariate regression show that the financial crisis increases the optimistic forecast of management. However, audit quality with Type II error criteria does not affect the relationship between financial crisis and optimistic forecasting of managers.