The Association Between Discretionary Accruals and Audit Report

In many studies, discretionary accruals are used as a measure of earningsmanagement. Considering the role of audits to attest the financial statements, it isexpected that auditors will detect and report questionable accounting practices andmaterial misstatements. As a result, this research attempts to answer the question ofwhether discretionary accruals (the measure of earnings management) increase a firm’slikelihood of receiving a qualified audit report. Also, considering Audit Organization asthe big audit firm in Iran and audit firms that are the members of Iranian Association ofCertified Public Accountants (IACPA) as the non-big auditors, we examined the effectof the size of audit firm on the ability to detect and report the earnings management inthe financial statements.A logistic regression model is utilized to test the hypotheses. The results of researchin a period of 5 years (138387-), shows that there is a significant relationship betweenaudit qualification and discretionary accruals, but there is no significant relationshipbetween the discretionary accruals of firms audited by Audit Organization (as the bigauditor) and other auditors (as the non-big auditors).