Accounting comparability, financial reporting quality and audit opinions: evidence from Iran

Purpose - Type of audit opinion is important for all stakeholders. Firm-specific characteristics have a direct impact on the type of audit opinion. The purpose of this study is to examine the association between accounting comparability (as a micro level characteristic), financial reporting quality (as a macro level characteristic) and audit opinions. Design/methodology/approach - This study uses a multivariate regression analysis to tests it hypotheses to a sample of firms listed in Tehran Stock Exchange during 2015–2019. To measure accounting comparability, the authors use De Francoet al. (2011) model, and Huttonet al. (2009) model to measure financial reporting quality. The authors use type of audit opinion, and auditor's remarks (explanatory notes) as the measure for audit opinions. Findings - The authors find a negative association between accounting comparability, and the proxies for audit opinion. The authors also find that a negative association between financial reporting quality and audit opinions. These results suggest that higher accounting comparability, and higher financial reporting quality (proxied by earnings quality) increases auditor tendency to issue unmodified audit opinion. Originality/value - To the authors' best knowledge, this is the first study that empirically examines the association between accounting comparability, financial reporting quality and audit opinion. This study provides empirical support for the theoretical views on the association between financial reporting quality and audit opinion. The results could be of interest of both auditors and managers, especially in emerging capital markets, who seek to improve financial reporting quality.