“Investigating the effective factors on changing auditor: evidences of Iranian firms”

This research will investigate the effective factors on changing auditor. Variables such as company size, audit opinions, audit reporting delay and auditing firm reputation are considered as effective factors on changing auditor. By selecting a sample which consists of 96 listed companies in Tehran’s stock exchange during 2010 to 2014 and applying multi-variable regression and econometric models, the results of research shows there is a significant positive relationship among company size, auditor opinion and auditing reporting delay and changing auditor, but there isn’t any significant relationship between auditing firm reputation and changing auditor. The findings of this research can fill the researches gap which are performed in this field and can provide accounting information for investors to make decision about stock exchange organization and other stockholders.


Introduction
The main financial reporting purpose is to provide reassuring information for financial statements' users. This information can be reassuring if an independent and neutral person confirmed its reliability and accuracy. The companies use independent auditing service to confirm financial statements and reassure their clients of financial reliability (Anderson, Koonsi, 2004). Auditing by independent auditors has an important role in improving financial information disclosure and its reliability. Therefore, auditors impersonate the role of a person who supervises company's financial reporting process. Independent auditors can decrease agency costs by identifying and investigating the completeness and accuracy of financial statements. Auditors have a crucial role in decreasing information risk that is the major reason for requesting auditing services. The importance of auditing profession effect on increasing financial statement reliability, changing auditor and its reasons are considered as an important subject in recent decades. Different factors such as opinion difference in financial reporting, auditor opinion, auditor salary and, etc., can affect changing auditor. In addition to legal necessity for financial statements auditing of the companies which are accepted in Tehran's exchange stock, agency theory and message theory are also justifying demand for auditing services. The auditor decreases agency risk that is created by managers and shareholders, large shareholders and small ones or shareholders and creditors conflict of interest. The auditors are faced with interest conflict in performing their jobs because they want to keep professional standards and framework and on the other hand, they should meet managers' demands. Therefore, if the auditors have an idea which is differed to managers, then, this can lead to interest conflict and finally can make managers change their auditor. Deciding to change the auditor consists of changing current auditor which is performed in order to change auditing quality according to conditions. If the company changes its auditor, then it should bear direct and indirect costs. A couple of variables which can affect choosing auditor will be investigated in this research.

Research background
Auditing is a neutral process of dealing with documents and other supporting evident of financial statements to reassure about management's implied propositions and achieving to rational principle for providing professional suggestion to check the suitability of provided financial statements by investigating their conformity to all important aspects of accepted auditing principles. The more sophisticated the economics subjects and the information conversion process, the more difficult problems the information users face in specifying information quality. Also, the complexity of system's information process and its detailed subject can cause mistakes. In these situations, auditing can be considered as equipment, which can assure information users about information quality. The importance of auditor independency made stock exchange commission to issue new set of rules on 21 st of November 2000. The professional behavior ordinance which sets by different countries is seeking to provide independence in transactions framework, financial interests and commercial and noncommercial relationships. (De Angelo, 1981) auditing can decrease information asymmetry between managers and shareholders by accrediting financial statements. Two reasons are given for positive relationship between discretionary accruals amount and auditing innate risk. First, by considering managerial opportunism, the accruals are tools which managers can apply them for earnings management and for manipulating them to their advantage. Second, the accruals are considered as a problem for auditors, which are related to risky accounts such as receivable accounts and inventories (Ferdinand, 1998). There is a belief in a society that auditing quality confirmation by economic settings in order to endure long-term auditing firms' activity, is too crucial and also auditing profession future is remarkably related to the quality of auditing process output. Also, there is a claim that quality is a major element for auditing firm competition (Herbach, 2001). On the other hand, measuring revenue process and its related result have an important role in running company and generally financial statements' users give too much attention to it. As calculating firm revenue is affected by accounting estimation methods and providing financial statement is one of firm's management responsibilities, the manager may perform earnings management for different reasons (Nazemi, 2010). In general, there isn't any common definition for earnings management, and different researchers are proposed various definitions according to their purposes in this field (Scott, 2009). Scott defined earnings management as selecting polices and accounting procedures in order to reach special objectives. These polices are divided into two categories. One of them is accounting method selection such as straight-line method of deprecation or FIFO approach for evaluating inventories and, etc., and the other category is related to discretionary accruals method. Estimating costs of goods assurance, bad debt provision, and inventory reduction stock value are considered as some of its examples. It is expected of an auditor to report any questionable accounting procedures or important mistakes and violations. In fact this shows the auditor independency and his professional competence. The possibility of exploring violations is related to auditor competency and the possibility of reporting violations is related to his independency. Auditor's market support and actually demand for auditing service is continued until the auditor was able to explore and report breach of contract (Watts and Zimerman, 1986). Therefore, the current research is seeking for empirical evidence to answer this question that whether the variables such as company size, auditor opinion, auditing report delay and auditing institution reputation affect auditor changing in Iranian capital market or not.
Mohammad and Habib (2013) have investigated the effective factors on mandatory auditor changing by selecting a sample which consists of 200 companies that are accepted in Egypt stock market and their research title was "auditor independency, auditing quality and mandatory changing of auditor". By applying multi-variable regression model, their research showed that there is a negative significant relationship among auditor's industry profession and reputation and changing auditor and also they figured out that there is a positive relationship among auditing report delay, auditor opinion, auditing salary and changing auditor.   2010) have investigated the relationship between auditing quality and the company equity costs for an 18955 company sample and their research title was "the features of auditing quality, auditing firm size and the company equity costs". The research period was during 1990 to 2004. Three variables as the size of auditing firm, industry profession and auditor tenure are implemented for measuring auditing quality. The research results show that there is a significant negative relationship between the size of auditing firm and the company equity costs. Besides, the results show that professional company owner auditors experience less equity costs than others. They also figured out that if the auditor tenure increases then the equity costs will decrease. Rasmin (2010) has applied Jones justified model to measure discretionary accruals and earnings management measuring criteria by applying variables such as industry profession and the size of auditing firm as auditing quality measurement indexes. He applied multi-variable regression and financial data of 301 active companies in Singapore stock market to test hypotheses during 2004 to 2008. The results of hypothesis test showed that there is a negative significant relationship between auditing company size and discretionary accruals. Besides, he figured out that the companies which are audited by professional auditors' industry have less discretionary accruals to others.

Research methodology
Current research is considered as applied in terms of its objective and it is considered as quasi-experimental events in terms of data gathering in accounting field researches which is performed by applying multivariable regression and econometric model.  1. There is a significant relationship between the company size and changing auditor. 2. There is a significant relationship between auditor opinion and changing auditor. 3. There is a significant relationship between auditing report delay and changing auditor. 4. There is a significant relationship between the auditing firm reputation and changing auditor.

Applied variables and model.
The studied variables in this research are consisted of dependent and independent variables which are measured as follows: dependent variable. Changing auditor is considered as a dependent variable in this research. This variable is a virtual one when the company has changed its auditor through the mentioned period, then, number 1 will be assigned to it, otherwise, 0 will be assigned; independent variable. Independent variables which their effects will be evaluated on changing auditor consist of the company size, auditor opinion, auditing report delay and auditors reputation. We will discuss each measurement method in following section.

Size LogS
Size i,t -i company size in year t; S i,t -net sale of company i in year t.

Auditor opinion. This is a virtual variable and
when financial statement's auditing report of a company is conditional, then, it will be assigned 1, otherwise, 0 will be assigned.

Hypotheses test.
The results of hypotheses test and performing the model will be revealed in this section. The detailed software output will be shown in specified tables in order to facilitate hypotheses comparability. To test the hypotheses, the following equation has been estimated: The results of each hypotheses test based on mentioned equation is shown in table below. First hypothesis states that: there is a significant relationship between the size of company and auditor changing. As it shows in revealed table, the estimation rate and statistical circumstances which are related to company size is positive and it is significant at 1 percent risk level which shows us that there is a positive and significant relationship between company size and auditor changing. According to this situation, the H 0 hypothesis is rejected and the first hypothesis is confirmed at 1 percent risk level. Second hypothesis states that: there is a significant relationship between auditor opinion and auditor changing. As the results of table shows the estimation rate and statistical circumstances of t related to auditor opinion (AUDOP) is positive and significant at 1 percent risk level. According to this situation the H 0 hypothesis is rejected and the second hypothesis is confirmed at 1 percent risk level. Third hypothesis states that: there is a significant relationship between auditing report delay and auditor changing. As the results of table shows the estimation rate and statistical circumstances of t related to auditing report delay (ARL) is positive and significant at 1 percent risk level. According to this situation the H 0 hypothesis is rejected and the third hypothesis is confirmed at 1 percent risk level. Therefore, based on this evidence it can be said that there is a positive significant relationship between auditing report delay and auditor changing. Forth hypothesis states that: there is a significant relationship between auditing firm reputation and auditor changing. As the results of table shows the estimation rate and statistical circumstances of t related to firm reputation (BIG) is negative and it isn't meaningful. According to this situation, the H 0 hypothesis is confirmed and the forth hypothesis is rejected at 5 percent risk level. It means that there isn't a significant relationship between firm reputation and auditor changing. and auditor changing. This means that the value of financial data auditing is decreased as auditing report is delayed, because the users are seeking needed information from various resource. Besides, the delay in auditing report has an inverted effect on financial reporting speed. As one of qualitative data features is the lack of delay and being timeliness, so when the auditing report doesn't provided in a specified time then the auditor will be changed. This reality matches Mohammad and Habib (2013) and Nezeri et al. (2012) findings, which reflects the positive relationship between auditing report delay and auditor changing.

Results and suggestions
The results of forth hypothesis show that there isn't any significant relationship between auditing firm reputation and auditor changing. While previous studies have shown that as larger auditing firms have more clients and have higher reputation in market, therefore, these firms present auditing services with higher quality in order to keep their reputation and have more availability to resources and accommodations. As a result, smaller auditing firms with lower reputation change their auditor in order to benefit from auditing firms which have higher reputation and better service quality. But current research doesn't confirm this relationship. One of the main reasons which can justify this situation is applying different measures for measuring auditing firm reputation in various researches. Besides, if the auditing firm were public, then it could intervene investigating auditing quality and reputation.