THE IRANIAN ACCOUNTING AND AUDITING REVIEW
Year:2025 | Volume:32 | Issue:3|Papers Count:7

Objective Drought, as one of the natural disasters, has economic, social, and environmental impacts on various aspects of human life. One of its economic consequences is its impact on corporate capital structure decisions. Since drought risk is part of overall business risk and due to significant changes in the business environment, the diverse strategies adopted by managers determine the company's future, and therefore play an important role in the firm's future value. This study aims to determine the impact of drought risk across different Iranian provinces on the capital structure of companies, the speed of capital structure adjustment, and the moderating role of operating cash flows. Methods The hypotheses of this study were tested using a sample of 151 companies listed on the Tehran Stock Exchange from 2011 to 2022, employing multivariate regression models and panel data analysis. This study is applied in terms of purpose and falls within the scope of descriptive-correlational research in terms of hypothesis inference. To measure drought in various provinces of Iran, the Standardized Precipitation Index (SPI) was used, based on data provided by the National Drought and Crisis Management Center, which reports figures by province. Results The findings of this research show that drought has a significant negative effect on capital structure and the speed of capital structure adjustment. Also, operating cash flows, as a moderating variable, have a significant positive impact on the effect of drought on capital structure. However, this moderating variable does not have a significant effect on the intensity of drought’s impact on the speed of capital structure adjustment. Conclusion Since drought risk is part of overall business risk and is one of the main causes of the water crisis and global warming, it can affect company operations. According to the static trade-off theory, elements such as opportunity costs arising from deviation from optimal capital structure and the associated bankruptcy risk are important in determining capital structure and the speed of its adjustment. Therefore, drought has a significant negative impact on capital structure and its adjustment speed. In addition, the higher the operating cash flows of companies, the lower the uncertainty in cash flows and the less the need to obtain loans, which in turn reduces the negative impact of drought on capital structure under conditions of high operating cash flows. Thus, operating cash flows mitigate the effect of drought on capital structure. However, they do not moderate the negative effect of drought on the speed of capital structure adjustment. This may be due to corporate caution and conservatism in reducing debt and adjusting capital structure toward the target leverage. Managers may doubt the continuity of increased operating cash flows in the coming years, which in turn slows down the pace of capital structure adjustment.

ObjectiveMental fatigue, as one of the influential cognitive factors, can significantly impair auditors' ability to identify fraud indicators. This condition, resulting from prolonged exposure to cognitive stress, may lead to reduced concentration, disrupted risk assessment accuracy, and weakened decision-making. In contrast, thought control, defined as a cognitive ability, facilitates the regulation and direction of mental processes under stressful conditions and can play an effective role in maintaining auditors' precision and efficiency. Given that fraud detection is a critical skill for auditors in promoting financial transparency and preventing resource mismanagement, it is anticipated that thought control enhances auditors' effectiveness in challenging work environments. This study aims to investigate the impact of mental fatigue and thought control on auditors' ability to detect fraud indicators and to evaluate the role of these cognitive factors in improving auditors' performance when facing professional challenges.MethodsThis cross-sectional study utilized structural equation modeling for data analysis. Data were collected using standardized questionnaires, and all study variables were measured using validated instruments to ensure both reliability and validity. The sample consisted of 166 auditors employed by auditing firms affiliated with the Association of Official Accountants in 2023. Participants were selected through convenience sampling to facilitate the examination of how cognitive variables influence auditors’ performance.ResultsThe analysis revealed that mental fatigue has a significant negative impact on auditors' ability to identify fraud indicators accurately. Specifically, increased levels of mental fatigue are associated with reduced ability to detect fraud accurately. Conversely, thought control functioned as a bidirectional variable: while some dimensions of thought control enhanced auditors’ accuracy in fraud detection, other dimensions appeared to diminish their performance. These findings underscore the complex nature of cognitive mechanisms involved in professional judgment and highlight the multidimensional role of thought control in the context of fraud detection.ConclusionThis study underscores the critical importance of adopting strategies to enhance thought control among auditors as a means to mitigate the adverse effects of mental fatigue and improve the accuracy of fraud detection. Mental fatigue, stemming from prolonged cognitive demands, poses a serious threat to professional judgment and decision-making in high-stakes environments such as auditing. Theoretically, the findings align with cognitive load theory, suggesting that strengthening cognitive regulation mechanisms can significantly enhance auditors’ focus and decision quality. From a practical standpoint, the research highlights the need for targeted cognitive training programs and emotional regulation techniques, such as mindfulness and stress-reduction strategies, to equip auditors with the tools necessary to sustain performance under pressure. Furthermore, by examining the role of psychological variables in shaping professional behavior, the study contributes valuable insights into the cognitive dynamics of audit quality. The findings may also serve as a basis for future research and policy development focused on optimizing auditors’ work environments and enhancing the resilience of the profession in the face of cognitive and emotional challenges.

Objective This study is to examine the relationship between the disclosure of internal control weaknesses and the efficiency of human resources investment in companies listed on the Tehran Stock Exchange. Since investment in human resources is recognized as one of the vital factors for the development and growth of business units, studying the factors affecting the efficiency of such investments is of great importance. Weaknesses in the internal control system can influence managerial decision-making and prevent optimal and efficient human resources investment. Therefore, this study aims to clarify how the disclosure of these weaknesses may impact the efficiency of human resources investment. Methods The data collection method for this study is archival. To test the research hypotheses and examine the relationships among various variables, a panel data model has been employed. The model proposed by Cao et al. (2024) has been used to measure inefficiency in human resource investment. After applying the relevant restrictions, the statistical sample consists of 123 companies listed on the Tehran Stock Exchange over the period from 2013 to 2022. The total number of firm-year observations is 1,230. Results The statistical analysis reveals a negative and significant relationship between the disclosure of internal control weaknesses and the efficiency of human resources investment. In other words, the more internal control weaknesses a company has, the lower the efficiency of its human resources investments. These findings indicate that internal control issues can lead to incorrect decision-making in resource allocation to human capital, thereby affecting the efficiency of such investments. Moreover, reducing internal control weaknesses can improve decision-making processes and resource allocation to human capital, ultimately leading to better efficiency in human resources investments. Conclusion According to the research findings, weaknesses in internal controls can lead to incorrect decision-making regarding resource allocation to human capital, thereby affecting the efficiency of such investments. In the long run, this issue may negatively impact the performance and productivity of business units. Therefore, it is recommended that companies precisely identify the existing weaknesses in their internal control systems and implement the necessary reforms to mitigate these shortcomings. The fewer the internal control weaknesses, the more optimal the companies' human capital investments tend to be. Improvements in internal control systems can enhance the effectiveness and efficiency of these investments. This measure not only contributes to the improvement of companies' financial performance but also fosters a transparent and trustworthy environment for investors and other stakeholders. Ultimately, strengthening internal controls can prevent financial issues and increase public trust in companies' performance.

Objective This study examines the impact of the fraud diamond dimensions, including fraud motivation, fraud opportunity, fraud rationalization, and managers' capability to commit fraud, on abnormal managerial tone in the annual board of directors' activity reports to the general assembly of shareholders. Based on agency theory, abnormal managerial tone may stem from managers' motives and their intent to manipulate market expectations. Additionally, behavioral theories suggest that abnormal managerial tone may arise from managers' individual and behavioral characteristics. Methods To measure fraud motivation, nine variables were used, including auditor opinion, employee growth, revenue growth, current ratio, working capital ratio, financial leverage, capital increase, earnings management, and tax evasion. CEO duality and weak internal controls were considered as proxies for fraud opportunity. Four variables, product market competition, transfer pricing, industry tax avoidance, and lack of political connections, were used as measures of fraud rationalization. Finally, six variables, CEO gender, tenure, ability, myopia, narcissism, and overconfidence, were considered as indicators of managerial capability to commit fraud. The study utilized data from 142 companies listed on the Tehran Stock Exchange from 2012 to 2021, totaling 1,411 annual reports. The hypotheses were tested using multiple regression analysis with fixed year and industry effects. Managerial tone was measured using a specialized lexicon of board-related words based on Iranian board activity reports (Paleh et al., 2021), while abnormal tone was measured using Hung et al.'s (2014) model. Results The results of the model estimations revealed that auditor opinion, revenue growth, financial leverage, earnings management, and tax evasion, as proxies for managerial motivation, significantly influence abnormal tone. Also, the effect of weak internal control, as a measure of fraud opportunity, on abnormal tone was confirmed. In addition, the influence of CEO tenure, ability, narcissism, and overconfidence, as indicators of individual capability, on abnormal tone was validated, and the impact of product market competition, transfer pricing, industry tax avoidance, and lack of political connections, as measures of fraud rationalization, on abnormal tone was supported. Conclusion The findings suggest that fraud indicators, i.e., motivation, opportunity, rationalization, and individual capability, can explain abnormal managerial tone. Fraudulent managers tend to use an excessively positive tone in qualitative reports to conceal misconduct, leading to an abnormal tone. The key innovation of this study lies in examining the influence of all four dimensions of the fraud diamond on biased and abnormal managerial tone, thus expanding the literature on managerial fraud and tone management.

ObjectiveAuditing, a cornerstone of ensuring the reliability, credibility, and transparency of corporate financial information, is vital to economic stability. The advent of information technology has revolutionized traditional auditing practices, rendering effective audits nearly impossible without technological integration. Artificial intelligence (AI) introduces both opportunities and challenges in accounting and auditing, particularly by enhancing data processing speed and quality. Although extensive research has explored AI’s role in auditing in developed countries, studies in developing nations, including Iran, remain limited. This study aims to evaluate AI’s potential to enhance auditing processes, focusing on its capacity to improve efficiency and quality across diverse economic contexts.MethodsThis applied study adopts a mixed-methods approach. The qualitative phase involved semi-structured interviews with 12 purposefully selected experts in auditing and AI, including members of the Iranian Association of Certified Public Accountants and academics. Interview data were analyzed using grounded theory through open, axial, and selective coding, with MaxQDA software employed for precise and efficient textual analysis. The quantitative phase utilized a survey of 200 auditors from various Iranian audit firms and organizations. The proposed model was validated using structural equation modeling (SEM) via SmartPLS to assess model fit indices.ResultsAI significantly improves audit quality by enabling efficient processing of large financial datasets, pattern recognition, and anomaly detection. Qualitative findings identified six key categories influencing AI adoption in auditing: causal conditions (environmental incentives, cultural, social, and political factors, and international pressures), contextual conditions (firm environment, accounting and financial systems, and financial incentives), core phenomenon (AI technology as the central element), strategies (establishing internal controls, AI training, designating responsible entities, setting standards, and promoting modern technologies), consequences (enhanced financial reporting quality, increased social trust, capital market development, and strengthened auditing profession), and intervening conditions (firm structure, corporate governance, industry competition, and managerial behaviors). These categories formed the foundation of the study’s model.Conclusion The findings demonstrate that AI automates routine audit tasks, such as data entry and reconciliation, thereby enhancing accuracy and allowing auditors to focus on complex analyses. AI-driven tools enable real-time financial forecasting, anomaly detection, and error reduction, significantly improving audit processes. By leveraging historical data, AI supports financial forecasting, budgeting, and the identification of suspicious accounts. This study highlights AI’s benefits and challenges, offering practical solutions for auditors and managers to make informed strategic decisions about its adoption. Given AI’s role in risk reduction and accuracy enhancement, this research provides a practical framework for policymakers and practitioners to optimize this transformative technology, contributing to a deeper understanding of its operational potential and implementation challenges in auditing.

Objective Drawing upon motivation theory and human resource theory, this study suggests that a high-quality workforce not only fulfills its responsibilities effectively but is also incentivized by the benefits provided by companies to such employees. The distinctive characteristics of a high-quality workforce contribute to the enhancement of corporate reporting by improving internal controls, strengthening corporate governance, and ensuring more transparent and accurate financial disclosures. Recent studies validate these assertions, establishing a relationship between workforce quality and the quality of financial reporting. Moreover, board members can play an indirect role in enhancing workforce quality by selecting and recruiting employees with desirable traits. Within this context, the present research aims to investigate the mediating effect of workforce quality on the relationship between board characteristics and financial reporting quality.   Methods This applied research adopts a descriptive-correlational approach to examine the relationships between the variables. The statistical sample, filtered based on specific criteria and constraints, consists of 105 companies listed on the Tehran Stock Exchange from 2013 to 2022. The hypotheses were tested using multivariate regression models. Results The analysis of the first three hypotheses reveals that board characteristics, specifically independence and gender diversity, have a significant positive effect on financial reporting quality. In contrast, board size exhibits a significant negative impact on financial reporting quality. The findings from the fourth to sixth hypotheses confirm that board characteristics such as independence, size, and gender diversity positively influence workforce quality. Furthermore, the results from the seventh to ninth hypotheses establish that workforce quality mediates the relationship between board independence, size, and gender diversity, and financial reporting quality. In particular, workforce quality fully mediates the relationship between board size and financial reporting quality, while it partially mediates the relationships involving board independence and gender diversity. Robustness testing further validated these results. Conclusion The research findings underscore the significant role of board characteristics, i.e., independence, size, and gender diversity, in enhancing workforce quality and improving financial reporting quality. A high-quality workforce mitigates the adverse effects of board size on financial reporting quality and positively influences corporate reporting. Consequently, the study emphasizes the importance of fostering a high-quality workforce, encouraging companies to prioritize workforce development and employee well-being. These findings highlight that workforce quality not only improves financial reporting but also promotes corporate growth and generates broader societal benefits by enhancing organizational focus on employee quality.

ObjectiveThis study aimed to identify and rank the challenges, key limitations, and maturity strategies of critical accounting and the quality of social benefits using a grounded theory approach. Accounting maintains a high level of accuracy and correctness in its professional services, and its ethical decision-making is necessary to obtain a fair, efficient capital market and optimal allocation of resources (Sepehri & Pak Maram, 2015). In the last twenty years, due to the phenomenon of globalization, the ever-increasing evolution of customer needs, and technological changes, the accounting literature has become highly specialized, and sometimes different parts of it have overlapped with each other, leading to the emergence of new concepts such as critical accounting (Ferri et al., 2016). Critical theory in accounting and its development in the modern era face numerous challenges and complexities. The fact that accountants have an inherent duty to respond to the general public is an inevitable issue and is one of the main principles of impartiality (Riahi-Belkaoui, 2002). In addition, the continuation of the life of any profession and the employment of its members depend on the quality of services, trust, accreditation level, and social and moral capital, each of which is essential to maintain (Rouzbakhsh et al., 2023). The maturity of critical accounting, while evolving democratic processes and institutions, encourages them to promote justice in areas related to the economy, society, and the environment through the focused development of accounting practices and equal accountability to all users of accounting (Sepasi & Ramzani, 2020). In the institutional sense, accounting is usually seen in the exclusive financial accounts of companies or the total national accounts of the government (Perkiss et al., 2022).Providing social benefits is the main goal of most governments and organizations, and the quality of social benefits is one of the most important dilemmas of human society (Safarzadeh Bandari & Jodaki Chegini, 2021). Accounting information may not be easily thought of as a natural tool for social movements. Critical theory in accounting can best provide an understanding of individuals, organizations, and societies, so it is important to accept a critical perspective in accounting (Baker & Bettner, 1997). Based on this view, the practice of accounting tends to support the economic, social, and political structure, as well as reduce the unequal distribution of power and wealth in society. Scholars question the critical view of the objectivity or neutrality of accounting information, arguing that accounting serves to create or legitimize certain social structures (Mohseni et al., 2018). On the other hand, one of the main goals of financial reporting is to provide useful information for decision-making by stakeholders. For this purpose, it is very important to provide appropriate financial information and solve problems related to the relationship between costs and social benefits (Vafaeipour et al., 2021). Determining the factors affecting the maturity of critical theory in accounting and the quality of social benefits, considering the business environment of companies and their relations with the government and society, is very necessary and important to achieve an effective accounting system for the consolidation of power and wealth in society. Based on this, the current research was conducted to identify and rank the challenges, key limitations, and maturity strategies of critical accounting and the quality of social benefits.MethodsThe grounded theory method was used to provide a model in line with the maturity of critical theory in accounting and the quality of social benefits through interviews with experts, which included 33 participants. Causal conditions and background conditions were presented after evaluation and screening with the fuzzy Delphi method. The present research was conducted in 2023–2024 (corresponding to 1402–1403 in the Iranian calendar). The statistical population of this research comprised experts and specialists who had sufficient expertise and experience in the field related to this research. In this study, the purposeful sampling method was used to select the study subjects. Then, in-depth interviews were conducted in a semi-structured format. The sampling of experts in this study continued until the discovery and analysis process reached the point of theoretical saturation. The data collection tool in this study was an open-ended questionnaire in the form of a semi-structured interview with experts. To extract interview items, three coding processes—including open coding, axial coding, and selective coding—were used, following the paradigm model of Strauss and Corbin (1998). In the quantitative stage, triangular fuzzy numbers were used to fuzzify the experts' points of view. The survey of experts was based on the fuzzy Delphi method and employed a seven-point Likert scale to validate and screen the dimensions and indicators identified in the qualitative stage. In addition, through the grounded theory method, the data were analyzed to screen and obtain assurance of the importance of the identified indicators, and the fuzzy Delphi method was used to select the final indicators.ResultsBased on this, according to the analyses and coding of the conducted interviews, two categories, five main components, and forty conceptual codes were obtained from the analysis process of the interviews in the open coding stage. Then, the central codes were ranked using factor analysis. The results of this study showed that among the categories related to key challenges and limitations, the components related to higher education issues, with a factor loading of 0.896, and accounting system challenges, with a factor loading of 0.892, are in the first and second places in terms of importance, respectively. Also, among the categories related to research strategies, the results showed that the factor loading of the components related to knowledge enhancement (0.874), legal reforms (0.857), and reform of the accounting system (0.641) ranked first to third in order of importance. These indicators, in estimating the validity of the model presented in the research, had acceptable validity, and the results of other researchers were consistent concerning critical thinking. As Khajavi and Neamatollahi (2020) used the critical approach and its role in accounting to discover the underlying structures and layers of social inequality, and reported that accounting and auditing standards should be reviewed. Ghasemi and Raeeszadeh (2020), with a critical view in accounting, stated that accounting transparency promotes social progress and prosperity. Samimi (2023), with an emphasis on critical theory and using the grounded theory method, examined the effective and underlying factors of monopoly in auditing and the negative characteristics of auditors, including cultural, environmental, and social factors, structural and technical weaknesses, political governance, and legal inhibiting factors, and addressed issues of supervision. Mohseni et al. (2018) stated that critical accounting refers to an approach in accounting that raises a question beyond the use of a specific method in accounting. In general, each of the conducted studies separately examined the issues of critical theory in accounting and the quality of social benefits and identified and presented various variables in this connection.ConclusionBased on the obtained results, it is suggested to focus on identifying the current and future needs and goals of social stakeholders concerning reforming the accounting system in scientific and knowledge-raising affairs, improving the transparency and quality of financial reporting, and reforming accounting standards and certain legal provisions to ensure conformity with international accounting standards. These reforms should be implemented, and the necessary groundwork for the institutionalization of social benefits should be provided. Also, providing accounting standards under critical theory to improve the quality of social benefits in this field can be effective. At the same time, it is suggested that in providing accounting standards, in addition to a critical view of social benefits, the benefits of the accounting system, as well as the benefits of information that are practical and useful for addressing social issues, should be considered. Furthermore, the development of accounting standards that address the needs of critical stakeholders should be prioritized, and special attention should be paid to this matter.