Accounting and Auditing Research

Accounting and Auditing Research

The Relationship between Unreadability of Financial Reporting and Agency Cost with Moderate Role of Audit Quality

Document Type : Original Article

Authors
Rafik Baghoumian 1
Zabihallah Khani 2
Hossein Rajabdoori 3
Nasim Sharafi 4
1 Assistant Professor of Accounting, Shahid Beheshti University, Tehran, Iran
2 Assistant Professor, Department of Accounting, Fasa Branch, Islamic Azad University, Fasa, Iran
3 PhD in Accounting
4 MSc. Student of Accounting, Fasa Branch, Islamic Azad University, Fasa, Iran
10.22034/iaar.2021.145045
Abstract
The purpose of the present study was to investigate the relationship between unreadability of financial reporting and agency cost with the moderate role of auditing quality. To examine the unreadability of financial reporting, the Fog Index was used and to examine the agency cost the interaction between growth opportunities and free cash flows was used. This research is in terms of its purpose and its time period is from 2013 to 2017 and the selected sample consists of 160 companies accepted in Tehran Stock Exchange (TSE). To test the hypothesis of the research, the ordinary least squares method was used in Eviews software. The findings of the research hypothesis test show that there is a positive and significant relationship between financial reporting unreadability and agency costs. Also, the positive relationship between financial reporting unreadability and agency cost moderating with the presence of audit quality is negatively corrected. Considering the findings of the research in order to control the agency cost, paying more attention to the readability of financial reporting is necessary.
Keywords
Financial Reporting Readability
Agency Costs
Audit Quality
Accounting and Auditing Research
Volume 13, Issue 52
Winter 2022
Pages 47-62