THE IRANIAN ACCOUNTING AND AUDITING REVIEW
Year:2006 | Volume:13 | Issue:44|Papers Count:13

This paper empirically investigates, in an emerging market, the role of earnings and book value in equity valuation and uses in the analyses a sample data of 226 Iranian manufacturing firms listed on Tehran Stock Exchange (TSE) for the period of 1991 to 2004. Employing after-tax earnings and beginning-of-year equity book value, both on a per share basis and deflated by the General Consumer Price Index, the paper provides evidences on the negative price-earnings relation and on the role of equity book value as a proxy for the abandonment option value when the firms report losses. Our work contributes in the market-based accounting literature at least in two ways: first, it provides evidence on the equity valuation research in an emerging market with the findings of negative price-earnings relation; and second, it is able to detect the abandonment option role of equity book value by applying in the analysis a proxy for the abandonment option value available to stockholders.

Our study investigates the relationship between the operating performance of Iranian industrial firms registered in Tehran Stock Exchange (TSE) and the behavior of discretionary accruals during the period of 1379-1382. We hypothesize that the degree of earnings management will depend on the firm operating performance. For this purpose, we construct 12 "cash from operations (CFO)" portfolios to test if there are systematic differences in discretionary accruals across portfolios. Three test methods (a mean accrual test, a correlation test, and a regression analysis) are used to investigate if operating performances affect discretionary accruals differently.The results support the hypothesis that Iranian industrial firms registered in TSE manage earnings. When operating performance is poor, the firms tend to choose income-increasing strategies, while, the well performing firms tend to select income-decreasing strategies as a whole. But, investigating individual portfolios shows that some of very performing firms tend to select income-increasing strategies.

The purpose of this study is to investigating the Iranian managers’ incentives to smooth income using discretionary accruals. The investigated incentives are size, income tax rate, debts by total assets ratio (debt contracts), deviation in operating activities, and earnings variability. Regression analysis is used to test the relation between smoothing behavior and five factors hypothesized to affect smoothing behavior. In this research, we test hypothesizes by: 1) cross sectional data from 1380 to 1383, and 2) accumulated data from 1380 to 1383.The results indicate that, Iranian managers' smooth incomes by using discretionary accruals, and income tax rate and deviation in operating activities are manager drivers to smooth income. Unlike western researcher’s findings, firm size, debts by total assets ratio (debt contracts) and earnings variability are not important drivers to income smoothing in the Tehran Stock Exchange.

Earnings quality is a topic that especially after recent financial scandals has been considered. In addition, the issue of raising equity capital from stockholders' receivables has become an important issue in TSE. In this research first, we examine the earnings quality of listed firms of TSE in the period of 1378 to 1383. Then we will test the relationship between earnings quality and raising equity capital from stockholders' receivables in the mentioned period. In this paper we have defined earnings quality as the difference between operating cash flows and operating income in long run. Although the results confirm the low quality of earnings in listed firms of TSE, but they show no relationship between earnings quality and raising equity capital from stockholders' receivables.

Audit time budgeting is one of the important activity of management in directing the audit institutes that depending on their accuracy have different effects on auditors and institutes.The managers’ estimate the time for auditing depends on their experience. In this research, we studied the usefulness of financial statements (balance sheet and income statement items) in predicting of time needed for auditing.We examined the data of 50 companies that selected randomly from the companies audited by audit organization in the period since 1376 to 1383. We use simple regression model and multi-variable regression models to study the correlations and usefulness of financial statement’s components in predicting of audit time. Statistic results show positive correlations between these items (independent variable) and audit time. Some variables such as current assets and current liabilities have highest correlation with audit time (dependent variable).Results show that multi-variable regression models are better in predicting audit time. In the models, only, one or two variables entered and the other variables removed from the models. Entering the other variables reduce the prediction capability of the models.

The major purpose of this study, is investigating and analyzing the relationship between stock returns and financial ratios of the firms accepted in Tehran Stock Exchange Market. In approaching this purpose, for every group of financial ratios, those ratios which had a low internal correlation were selected as "independent variables", and the stock return was chosen as the "dependent variable". The major hypothesis was that there is a significant relationship between financial ratios & stock returns. The relevant data relating to period 1378-1382 were collected. For testing hypothesis, the regression and panel data techniques were used. The results from the whole industries as well as each single industry showed that there is a significant relationship between stock returns and selected financial ratios.Therefore, all hypothesis of this study were confirmed.

The purpose of this study is to examine evidence in respect of the view of auditors, accountants, investors and providers of finance's (banks) on non-audit services and their effect on the independence of auditors; whether independence of the audit firms is affected through carrying out non-audit services, and if so, what type of services would have a negative effect on the independence of auditors. Non-audit fees and their effect on the independence of auditor are also examined.Finally, this study is trying to provide guidance for the standard setters in disallowing or limiting certain non-audit services, and the amount of such fees.

Investment is one of the most important issues both from macro and micro points of view. If we define the investment as delaying the consumption of current resources for the benefit of having access to more resources in the future, we will find the importance of recognizing the opportunities through which one can find more capital, twice as much important. This study will examine the return and risk of four investment alternative opportunities (include investing on stocks, gold, foreign exchange and bank deposits) based on the historical monthly data. Then according to trade-off of return and risk of investment, each alternative will be compared.The outcome of this research indicates that the return of stock will benefit the investors more than having their capital invested on other alternative investment opportunities, within the given period. Meanwhile considering the high rate of return on investment on stocks, this opportunity relatively carries lower risks than other alternative investment opportunities.