The effect of coronavirus outbreak on the relationship between management entrenchment and audit quality

Document Type : Original Article

Authors

1 Department of Accounting, Faculty of Social Sciences and Economics, Al-Zahra University (S), Tehran, Iran

2 Department of Accounting, Faculty of Social Sciences and Economics, Al-Zahra University, Tehran, Iran.

3 Department of Accounting, Faculty of Social Sciences and Economics, Al-Zahra University, Tehran, Iran

Abstract

Objective: Auditors are always looking for high-quality audits to maintain their professional reputation, in order to prevent profit manipulation and abuse by managers and provide the necessary confidence for decision-making to users of financial statements. On the other hand, in situations where managers see their position as unstable, they try to manipulate the amount of real profit through accruals in order to maintain their position, and this presents auditors with serious challenges and can affect audit quality. Now, given that the world has faced many social and economic crises with the spread of the coronavirus, this study attempts to examine the moderating effect of the coronavirus outbreak on the relationship between managerial entrenchment and audit quality.
Methods: The present study is an applied research in terms of classification by purpose and a descriptive research in terms of classification by method. For this purpose, information on 136 companies listed on the Tehran Stock Exchange for the years 2017-2019 (before Corona) and 2020-2022 (after Corona) was extracted from financial statements and explanatory notes as well as the auditor's report, and the hypotheses were tested through regression analysis with the Eviews software. In this study, audit quality was measured through accruals and management entrenchment through two factors of duality and CEO tenure.
Results: The results showed that the spread of coronavirus has a significant negative relationship with audit quality, and audit quality has decreased with the spread of coronavirus. Also, managerial entrenchment has a significant negative relationship with audit quality, and with increasing managerial entrenchment, audit quality decreases. In addition, the results of the study showed that the spread of coronavirus has a significant effect on the relationship between managerial entrenchment and audit quality, causing this relationship to decrease. The control variables return on assets, free cash flow, and
 
financial leverage has a direct relationship with audit quality, and company size has an inverse relationship; while auditor size, asset growth, and company value do not have a significant relationship with audit quality.
Conclusion: Given the negative relationship between the spread of the coronavirus and management entrenchment with audit quality, it seems that managers are trying to maximize their own interests through opportunistic behaviors, including manipulating accruals, and as a result, they are preventing high-quality audit work. Also, during the coronavirus crisis, considering that auditors have been forced to work remotely, this can have a significant impact on auditors' decision-making and judgment, and ultimately lead to a decrease in audit quality. Also, considering the spread of the coronavirus, it is likely that companies that have had high management entrenchment have tried to use this corona opportunity and invite auditors with expertise to cooperate in carrying out the audit process in a way that identifies and records all problems and errors and attributes all these problems to the spread of the coronavirus.
Innovation: Since no empirical study at the domestic or international level has examined the impact of the coronavirus outbreak on the relationship between managerial entrenchment and audit quality, the present study was innovative. Given that we can learn from the coronavirus outbreak as an emerging factor in the world that caused all professions in the world, including auditors, to face serious challenges and restrictions, including quarantine and remote working, the results of this study can be a basis for similar social cases, and its findings can be important for legislators, investors, and researchers.

Keywords

References

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History

  • Receive Date: 25 October 2024
  • Revise Date: 31 December 2024
  • Accept Date: 15 April 2025
  • First Publish Date: 23 August 2025
  • Publish Date: 23 August 2025

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