The Effect of Auditor's Conservatism on the Information Content of Profit by Considering the Role of Comparability of Accounting Information

The aim of the current research is to investigate the impact of the auditor's conservatism on the informational content of profit by considering the role of comparability of accounting information.

Information of a sample of 131 companies listed in the stock exchange was collected for a period of 10 years from 2013 to 2022. To measure the information content of profit gained from the profit reaction coefficient and to evaluate the auditor's conservatism used model Chong and colleagues (2003) which is inspired by Basu's (1997) model and the profit-return criterion was used to measure the comparability of accounting information.

The results showed there is an inverse and significant relationship between the auditor's conservatism and the profit information content and presence of conservative auditor reduces the profit reaction coefficient to stock returns by providing more conservative information. In this regard high comparability gets intense the negative effect of the auditor's conservatism on the profit information content.

With the increase of the conservatism of the auditor, the amount of information content of the profit will decrease and the conservatism of the auditor reduces the sensitivity of the return to the declared profit to the market, and this can be the result of the caution of the auditor in confirming the declared profit figure of the company has been informed to the market in a reasonable manner. Comparability intensifies the negative relationship between two variables.

Contribution: 

The present research provides useful evidence for company managers and capital market agents by better using the financial information disclosure mechanisms and conservative auditors, a reasonable level of effectiveness of the return can be established and the information content of the profit can be placed at a balanced level in the market and abnormal reactions at the time of profit announcement reduced.