An Investigation of Relationship between Audit Quality and Investment Opportunities in Tehran Stock Exchange (TSE)

Numerous studies have been done to obtain a written pattern in order to determine auditing quality since 1981 following documentation of auditing quality according to company size by Linda De Angelo. Multiple factors such as auditing company size, tenure period of auditor and report type were applied in various investigations to determine quality. Recently, the tendency to evaluate factors affecting auditing quality has been increased among researchers due to the change of demands of auditor services. Pattern of internal studies have indicated that a company's size (organization as big and society as small) and tenure period of an auditor are the main factors in studies. Divergent findings have been obtained. In this paper a company’s size is considered as auditing quality scale. We examined the two proposed hypothesis using statistical logistic regression and multivariate regression. Tests were conducted using real data related to 155 companies chosen from those companies accepted in Tehran stock exchange during (2004-2009), in these tests the known software SPSS and LISREL were used. Findings have shown that companies with high-investment opportunities have greater discretionary accrual and companies with high-quality accounting have fewer opportunities for investment. It is obvious that companies with higher discretionary accrual and are subjected to profit manipulation have more investment opportunities. Companies that choose organization as independent auditor (this selection as independent auditor is parallel with having higher auditing quality) have less opportunity for investment and as a result have lower profit manipulation. In general, it is obvious that companies with less investment opportunity and less discretionary accrual and lower profit manipulation choose organization as independent auditor. These findings show that although managers of companies with higher investment opportunities are expected to manipulate discretionary accrual and have better auditing quality and organization is chosen as an independent auditor but the mentioned possibility is reduced.