The effect of internal audit effectiveness and quality of financial reporting on information asymmetry between manager and auditor

Document Type : Research Paper

Authors

1 PhD Student in Accounting, Rasht Branch, Islamic Azad University, Rasht, Iran

2 Assistant Professor.,Department of Accounting, Rasht Branch, Islamic Azad University, Rasht, Iran.

3 Assistant Professor., Department of Management, Lahijan Branch, Islamic Azad University, Lahijan, Iran.

Abstract

  Introduction
In business units where there is more unique information, the information gap between the auditor and management widens, which can affect the quality of auditing and the quality of accounting information. According to game theory, internal audit as one of the mechanisms of the management system on the one hand can reduce the conflict between the independent auditor and the company and on the other hand can improve the quality of financial reporting. Therefore, the purpose of this study is to investigate the effect of internal audit effectiveness and quality of financial reporting on the information asymmetry of the manager and auditor of companies listed on the Tehran Stock Exchange.
 Hypotheses
As the quality of internal auditing improves, the quality indicators of financial reporting improve and as a result information inequality decreases (Alisa et al., 2014). Thus, three hypotheses are presented:
H1: The quality of financial reporting affects the information asymmetry
H2: The effectiveness of internal audit affects the manager-auditor information asymmetry.
H3: The effectiveness of internal auditing intensifies the relationship between financial reporting quality manager-auditor information asymmetry.
 Method               
To test research hypotheses use a statistical sample consisting of 114 companies listed on the Tehran Stock Exchange for the years 2010 to 2019 was selected. In order to measure the information asymmetry between the manager and the auditor, a combined five-factor index called the distance from the industry index has been used. Data analysis was performed by multivariate regression method using STATA software.
 Results
The results of testing the research hypotheses showed that the quality of financial reporting and the effectiveness of internal audit lead to a reduction of information asymmetry between the manager and the auditor. Also, the effect of financial reporting quality on manager-auditor information asymmetry is intensified despite the presence of an effective internal auditor.
 Discussion and Conclusion
Internal auditing has a unique and fundamental role in corporate governance by monitoring organizational risks and helping to ensure the reliability of financial reporting. An effective internal auditor helps the entity pursue its financial reporting objectives by providing systematic details of what is being done in the company and how it is being done. Internal auditing, which acts as an overseer of the company's financial activities, improves financial reporting practices.The research findings provide evidence of the internal auditor's supervisory role on the financial reporting process and reduce manager-auditor asymmetry.
       

Keywords

References

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Journal of Accounting Advances
Volume 13, Issue 1 - Serial Number 81
October 2021
Pages 101-129

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History

  • Receive Date: 20 February 2021
  • Revise Date: 03 October 2021
  • Accept Date: 03 October 2021

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