Business Strategy and the Audit Quality of Financial Statement based on Competition Theory (Experimental Evidence: Tehran Stock Exchange)

The main purpose of this study is to examine empirically and determine the effect of prospective business strategy on audit quality in the context of competition theory and risk-based audit theory. The statistical population of the present study is Tehran Stock Exchange. 75 companies were selected as sample of the study from 2010 to 2019. Multivariate linear least squares (LS) method with Fixed- effects panel approach was used for statistical analysis. To measure audit quality, the discretionary accruals criterion based on the models of Kothari et al. (2005), Jones (1991), Sloan et al. (1995) and Kasznik (1999) is used. The findings of the research data analysis show that the artificial variable of prospective business strategy is positively and significantly correlated with discretionary accruals criteria. Based on these findings, it can be concluded that the quality of auditing of financial statements is lower for companies with prospective business strategies than for other companies. The findings and results of the present study provide, for the first time, evidence on the empirical relationship between firm's business strategy and audit quality. Therefore, the findings of the present study can be used in the context of legislation in the audit profession.