فصلنامه دانش حسابداری
پیاپی 42 (پاییز 1399)

This study explores the impact of seasoned equity offering (SEO) on financial reporting quality (FRQ), using free cash flow and growth opportunities, considering the cost of capital. Financial reporting quality is a potential factor in reducing information asymmetry between managers and shareholders of the companies.

We used two samples of the companies listed in the Tehran Stock Exchange from 2001 to 2018. The principal sample consists of the companies that had seasoned equity offerings, and the parallel sample consists of the companies that are in the same industry and did not have SEO. The principal sample consists of 1543 company-year observations, and the parallel sample consists of 1938 company-year observations. We used two methods to calculate growth opportunities, the market-to-book value ratio, and Hyland and Diltz (2002) method. Free cash flow (FCF) was estimated using the Richardson (2006) method. To examine the role of cost of capital,  we used the five-factor model of Fama and French (2015). Financial reporting quality was estimated using the methods of Dechow and Dichev (2002) and McNichols (2002). To test the hypotheses, we estimated multivariate linear regressions using the findings of Dechow and Dichev (2002), Doyle et al. (2007), and Huang et al. (2012) and the portfolio formation approach.

Given that there are various measurements of  financial reporting quality and there is no universally accepted way of the measurement of financial reporting quality, the results showed that the companies with high free cash flow and low growth opportunities and those with low free cash flow and high growth opportunities increase their financial reporting quality when seasoned equity offering. The companies with higher cost of capital have higher financial reporting quality compared with those with lower cost of capital, and when seasoned equity offering, the companies with lower cost of capital increase their financial reporting quality. The results also showed that while the companies without capital raising have high free cash flow and low growth opportunities, they have low financial reporting quality, and while the companies have low free cash flow and high growth opportunities, they have high financial reporting quality.

Companies that accept seasoned equity offerings increase the quality of their financial reporting to attract more funding and succeed in underwriting new stocks.

The professional judgment of an auditor is a key factor in the proper conducting of the audit process. To make the proper decision, the auditor must understand issues such as client operational characteristics, complexity, and organizational structure, since all of these issues can logically affect auditor's opinion. The purpose of this study was to investigate the relationship between business strategy and audit quality of the companies listed in the Tehran Stock Exchange concerning the environmental factors.

According to the purpose of the study, this research is applied research. In this study, according to the specific type of data and the usual method of analysis, we used the pooled data method for estimating. We used data of 135 companies listed in the Tehran Stock Exchange from 2010 to 2017. The audit quality was measured using output metrics (with type I audit error, type II audit error, new qualified report, and financial reporting quality).

This study showed that the relationship between business strategy and type I audit error is direct and significant, and the relationship between business strategy and type II audit error is negative and significant. Also, the type of audit report and the financial reporting quality have direct and significant relationships with business strategy.

This study provides important insights for investors and users of financial statements. That is, determining the quality of the audit (or lack thereof) without knowing the audit and business environment of companies is incomplete and will lead to misleading decision-making Also, investors and users of financial statements can develop their insights and awareness of the quality of corporate auditing by making a logical connection with the type of business strategy of companies.

Many accounting and auditing variables represent forecasts of future events. Accordingly, decision making under conditions of uncertainty is of fundamental importance in accounting and auditing studies. An important aspect of such studies is estimating the risk of corporate bankruptcy. The estimated risk occurs because the probability of the customer going bankrupt is unknown and must be determined statistically. The bankruptcy risk is somehow different from the estimated risk. Some companies can have the same point estimates of bankruptcy while they do not have the same risk estimates. The level of risk estimation indicates the degree of inaccuracy in the point estimates of bankruptcy. We measure the risk estimate using the standard errors of point estimates of the bankruptcy because the risk estimate is the second-moment risk and measures the estimation precision and uncertainty around the point estimates of bankruptcy. In other words, we use the variance-covariance matrix to compute the standard errors of point estimates. In general, given the importance of bankruptcy and its consequences, our research aims to assess auditor's conservatism by measuring the risk estimates and analyzing their impacts on auditor behavior.

In this study, we first obtained the point estimates of bankruptcy and their standard errors, and then we predicted bankruptcy by specific models over rolling windows over the past five years. Then, we estimated multiple regression and probit models using the data set of 110 companies listed in the Tehran Stock Exchange, TSE, from 2007 to 2017. The data set was collected using financial statements, audit reports on the financial statements, the official website of the TSE, and the official data from the Iranian Association of Certified Public Accountants. At last, we performed data analysis to test related research hypotheses.

According to the research findings, an increase in the estimated risk of bankruptcy leads to a positive effect on the issuance of going opinion and no effect on audit fees.

The main idea of this study is reporting auditors are risk-averse. The estimated risk imposes incremental uncertainty on the risk-averse auditors and consequently, affects their behaviors. On the other hand, our findings suggest that auditors are more conservative when they face a greater risk. Auditors are cautious about their professional responsibility and social accountability related to the bankruptcy of their client firms. Auditors get more conservative along with the increase of the estimated risk.

The purpose of this study is to examine the incremental usefulness of firm-specific differential persistence of earnings components on abnormal excess returns. In most previous research, the differential persistence of earnings components has been estimated using a cross-sectional approach. The main assumption in the cross-sectional approach is that the differential persistence of accruals and operating cash flows are equal in all companies, while the differential persistence of earnings components is a firm-specific phenomenon and this approach makes it possible to estimate a variety of differential persistence among different companies. For this purpose, this study presents a trading strategy based on firm-specific estimates of differential persistence of earnings components that its effect on the abnormal excess returns has been examined in the presence or absence of loss companies. The strategy is to measure the difference between the forecasted earnings based on firm-specific differential persistence of earnings components and the forecasted earnings based on the operating earnings, which is called the unexpected earnings.

To test the hypotheses, we selected the data of 143 companies listed on the Tehran Stock Exchange from 2001 to 2018 using the systematic elimination method. For analyzing information and testing hypotheses, Carhart's (1997) four-factor model has been used.

The findings of this study showed that the differential persistence of earnings components leads to abnormal excess returns that increase in the absence of loss companies. Many argue that a trading strategy based on firm-specific differential persistence of earnings components, on the one hand, and investors fixation on earnings, on the other hand, identifies useful information that is often overlooked by unaware investors. Thus, this trading strategy targets the mispricing of securities and, by identifying mispriced securities, earns abnormal excess returns. Also, according to Kraft et al. (2006), investors' fixation on earnings does not misprice loss companies. This issue is because the investors consider the reported losses of the companies and then analyze the components of the losses and the reasons. Thus, the presence of loss companies in estimations weakens the abnormal returns of the trading strategy based on the firm-specific differential persistence of earnings components.

This study shows that investors can achieve abnormal excess returns by considering the information content of the earnings components in the valuation of securities.

Information is the most important source of decision-making, and its important role in the capital market makes it the most important asset. The auditing profession provides useful data for potential investors to have informed decisions by providing information for companies in the form of financial statements. However, the speed of reaction and the right decision by investors depend on the qualitative characteristics of financial statements; and the most important one is timely access to information. According to the theoretical foundation of financial reporting, timely access to information is one of the limitations of financial reporting that overshadows the achievements of qualitative reporting characteristics. Timely annual financial reporting, as an information advantage, remains at the center of investors' attention. On the other hand, the various characteristics of the audit committee chair can overshadow the effectiveness of information disclosure outside and play an effective role in timely financial reporting. The purpose of this study is to investigate the impacts of financial expertise and empirical features of audit committee chairman on timely financial reporting.

Method:

 The statistical population of the study was all the companies listed on the Tehran Stock Exchange during a 6-year period from 2013 to 2018. To test the research hypotheses, we used the OLS model with robust standard errors. Also, to control the confounding effects of industries and different years, we added dummy variables to the regression models. We could examine the confounding influences of industries and years, and the model fits correctly.

Results:

The results show that there is no significant relationship between financial expertise and empirical features of the audit committee chairman with a delay in the audit report. Also, the additional results obtained from the robustness test strongly support the results of the principal research model. Therefore, there is not enough evidence to support the research hypotheses.

Conclusion:

The results of the data analysis indicate that the financial expertise and the tenure of the Audit Committee chairman do not help to improve the timeliness of financial reporting. The results also show that the measures of corporate governance concerning the audit committee do not display the expected performance in the companies listed on the Tehran Stock Exchange. The emergence of audit committees as well as the internal audit profession, which complements audit committees, can be a reason for this issue. Lack of knowledge and the necessary basic training, lack of clear instructions, the incomplete formation of audit committees and internal audit unit, and lack of full support of the company's senior management of the internal audit unit can be the reasons for the lack of impact. Over time, we expect more experiences and future reforms of audit committees to become more efficient and effective and to play a prominent role in improving corporate governance indicators.

Sas no. 99 in the U.S.A and Sas no. 240 in Iran by the requirement to decompose the misstatement risk to intentional and involuntary risks intended to increase the auditor’s ability to detect the fraud. But one of the biases that auditors always face in the fraud detection process is a lack of enough attention to relevant evidence in the auditing process. This bias could lead to misinterpretation of audit evidence and audit failures in detecting fraud. Applying a decomposition approach for a judgment to examining, comparing, and communicating between documents may lead auditors to hold detection systematically. Accordingly, this study examined the effects of applying holistic, decomposed, and grouping methods on the sensitivity and quality of senior auditor’s fraud risk assessments.

This study is a causal-comparative, which used a 3*2 between-subjects factorial design and covariance analysis to test four hypotheses. In this research, the data obtained from a questionnaire and the sample consisting of senior auditors who are working in private auditing firms. In this study, 77 auditors assessed fraud risks, of which 42 auditors were assigned to the high and 35 auditors to low fraud risk conditions. These auditors used holistic, decomposed, and grouping methods for assessing fraud risk.

Covariance analysis showed that using the decomposed method leads to assessments of overall fraud risk, which is more sensitive to change in the level of fraud risk. In other words, using the decomposed method could increase the auditor’s attention to a high level of ls of fraud risk. But when comparing the two methods, the fraud risk assessments with decomposed and holistic methods were not significantly different. Also, assessment of the sensitivity of situational risk (opportunities and incentives) to changes in the level of fraud risk was not significantly different when using decomposed and holistic methods. Also, the results indicated that using decomposed and grouping methods cannot increase fraud risk quality. Surprisingly, in the holistic method, the auditor’s judgment was more consistent with the experts' judgments.

The fraud issues are increasing in the world generally, and stockholders are more sensitive to these issues because of the impact on their investments. Because of this concern and as mentioned before in Sas no. 240 in Iran, Sas no. 99 in the U.S. required auditors to decompose the misstatement risk to intentional and involuntary risks to increase the auditors' ability to detect fraud. Based on the results, decomposition of the misstatement risk to intentional and unintentional risks can increase the auditors' ability to detect fraud.

The purpose of this paper is to estimate the systemic risk of the banking industry, considering the structure of banks' balance sheets in the interbank money market. To do this research, it develops a network model based on banks' balance-sheet interdependence to analyze how the liquidity risk in a bank moves to other banks. The model shows that liability of the typical bank is an asset in the balance sheet of other banks. When a borrower bank runs out of liquidity and fails to commit to settling its debts in the interbank money markets, lenders run short and reduce their activities in the interbank money market, leaving other banks with liquidity constraints. In fact, a crisis in one bank moves to other banks, which may pose a risk of transmission. In this paper, to measure the systemic risk, the liquidity index in the interbank money market is introduced that is the weighted average of banks' liquidity position. We use daily transactions in the interbank money market from 2013 to 2019 and apply Adrian and Brunnermeier (2016) ∆CoVaR measure and quantile regression to estimate the systemic risk.

The method of collecting data includes document information and record data from interbank money market transactions extracted from the central bank website. In this study, the sample consists of daily transactions of reciprocal deposits of 32 active banks in the interbank money market between November 2013 and July 2019. The interbank money market started its operation in 2009 with two banks. The volume of interbank transactions has increased significantly in the last decade so that in 2019 the volume of transactions is 2.4 times the total liquidity of the economy. The method of data analysis is a quantitative one using E-views software and MATAB software, respectively. To estimate △CoVaR, we first considered two Quantile regression models for 95 and 50 percent Quantiles using ordinary least squares (OLS). All parameters were statistically significant. To estimate the VaR of the stock market and banking system liquidity indices, we first considered the conditional variances of these two indices using the GARCH family models. We estimated different GARCH models and the best model fitted to the data. In the next stage, we used estimated conditional variances to estimate conditional VaR(CoVaR) for two different 95 and 50 percent quantiles based on the estimated parameters of quantile regressions. At the last phase, we calculated △CoVaR based on estimated CoVaR for two quantiles.

The results of the research showed that the null hypothesis of normality of distribution of both stock market index and liquidity status of the interbank money market is rejected based on Jarque-Bera, Andersen-Darling, and Cramér–Von Mises statistics. Dickey-Fuller and Philips-Peron unit root test results showed that both variables are stationary. The results also indicated that the distribution of ∆CoVaR is not normal. Based on the average of ∆CoVaR,  in the case of a banking system liquidity crisis, the stock market index will decrease by 2081 units per day on average. The maximum decrease in the stock market is 7088 units in the case of a banking crisis. Concluding: The research result indicates the interdependent structure of banks' balance sheets in the interbank money market. According to the results, the central bank, as a market monitoring authority, should control daily transactions in the interbank money market. It also should take the structure of banks' balance sheet interdependence into consideration in the estimation of the banking system systemic risk.