Relationship between the audit quality and the value relevance of earnings and the book value of equity by looking at the ranking of trusteed auditing institutions of Tehran Securities and Exchange

Mashayekh, Shahnaz; Shams, Zahra

Relationship between the audit quality and the value relevance of earnings and the book value of equity by looking at the ranking of trusteed auditing institutions of Tehran Securities and Exchange

Document Type : Original Article

Authors

Shahnaz Mashayekh ¹

Zahra Shams ²

¹ Associate Professor of Alzahra University, Iran

² Ph.D. Student of Accounting of Alzahra University, Iran

Abstract

The purpose of this study is to investigate the relationship between the audit quality and the value relevance of accounting items such as profit and book value of equity. To this end, the association with the value relevance of the earnings and the book value of the equity of the companies audited by trusted auditors (ranked A in the ranking of the Tehran Stock Exchange) and other companies is compared. In this regard, two separate samples are used. The first sample includes 110 companies that audited by auditors rated A , and the second sample includes 82 companies audited by other trusted institutions. The results indicate that the announcement of earnings and book value of capital in the case of companies that are audited by trusted auditor will create more fluctuations in their returns than other companies. As a result, information about earnings and the book value for companies with higher audit quality is more valuable than other companies. The results of this study show that auditing by auditors ranked A increases the value relevance of companies.

Keywords

Auditing

Value Relevance

Earning

Equity

Capital Market