Auditor economic dependence consequences on financial reporting quality considering corporate governance

Abstract In this study, the effects of auditor economic dependence on financial reporting quality. In this regard, after establishment of the relationship, the corporate governance mechanisms including stockholder’s supervision (institutional ownership), board of director’s supervision (outsider board of directors) and auditor supervision (audit size) are considered as moderating variables in the relationships to scrutinize the relationship. Accrual quality, earning persistency, earning smoothness and earning predictability is applied to measure financial reporting quality. Using historical data from listed Tehran Stock Exchange firms and sampling 118 firm years out of it during 2011 to 2019, the results show that auditor dependence has a positive significant effect on financial reporting quality. Regarding corporate governance mechanisms, results indicate that board knowledge (accrual model) moderates the relationship between auditor economic dependence and financial reporting quality. The results on the whole supports the audit work theory. Keywords: Auditor Economic Dependence, Financial Reporting Quality, Corporate Governance Mechanisms