An Investigation on the Effect of Type of Auditor on the Incidence and Magnitude of Expectations Management: Evidence from Tehran Stock Exchange

Background/Objectives: To investigate the effect of type of auditor on the incidence and magnitude of expectations management in Tehran Stock Exchange listed companies. Methods/Statistical Analysis: In order to examine the hypothesis, a sample of 174 firms was collected using systematic sampling method from the spring of 2012 to the winter of 2013 and was examined quarterly. Furthermore we have examined the hypothesis by employing logistic regression and estimated generalized least squares method. Findings: Our results indicate that there is a negative significant relationship between type of auditor and both the incidence and magnitude of expectations management as the two aspects of expectations management. In other words by increasing the type of auditor (which is done by Audit Organization), both the incidence and magnitude of expectations management will reduce. Applications/Improvements: Based on our results companies are recommended to utilize Audit Organization in order to perform their auditing task so that they can reduce and better manage the incidence of earnings per share volatility and the magnitude of the difference of earnings per share forecasts over a year.