Investigating the relationship between auditor tenure and the size of the audit firm with earnings management in pharmaceutical companies listed in Tehran Stock Exchange

Abstract

Earnings management and related research has been always of interest in accounting researches. Most corporate managers use different methods of earnings management to reduce risk and smooth earning in various periods, meanwhile, the auditors are expected to be able to prevent the occurrence of this phenomenon; therefore, the present study is designed and implemented to investigate the relationship between tenure and the audit firm size and earnings management. The statistical population consists of pharmaceutical companies listed in Tehran Stock Exchange and the sample was selected to be 25 pharmaceutical companies using the systematic elimination method. The time realm of this study is 2005 to 2010. The objective of the present research is applied and it is descriptive – correlational in terms of implementation and data were analyzed using multivariate regression based on panel data method. Although research findings indicate that there is no relationship between auditor tenure and earnings management, but increase in the size of the audit firm reduces management flexibility in the use of discretionary accruals for earnings management.