The role of audit quality on the relationship between information asymmetry and both informative and deceptive dimensions of income smoothing

The main aim of the present study is to investigate the relationship between information asymmetry and the two informative and deceptive dimensions of income smoothing considering the moderating role of audit quality. To measure audit quality using factor analysis approach, a composite index was constructed by auditor tenure, audit firm size, optional accruals, and industry expertise variables. The bid-ask spread model also is used to measure information asymmetry. Research hypotheses were examined using required data from 106 of listed companies in Tehran Stock Exchange during 2009-2018. The results indicate that information asymmetry has a negative and significant effect on informative earnings management, but a significantly positive effect on deceptive earnings management. The results also indicate that when the audit quality is high, it significantly reduces the intensity of both the negative and positive effects of information asymmetry on the informative and deceptive income smoothing respectively.