Examining the change of auditor from the perspective of corporate governance in Tehran Stock Exchange

Dissertation to receive the master degree "M.A". In addition to the compulsions that capital market administrators have considered to change the auditor, the change of auditor may be caused by the existing corporate governance mechanisms within the organization in such a way that they choose the auditor that has the most independence and the highest audit quality. In the current research, the researcher tested the information of 92 companies between 1387 and 1391 to measure the relationship between corporate governance mechanisms and the change of auditors of the companies admitted to the Tehran Stock Exchange. The examined corporate governance mechanisms include the concentration of ownership, the independence of the board of directors, and the separation of the position of the chairman of the board of directors from the CEO. The results show that as the concentration of ownership increases, the tendency to change the auditor to a smaller auditor increases, and the decrease in independence, like the increase in concentration of ownership, leads to the change of independent auditors to smaller auditors. Also, the results indicate that there is no effect of separation and the two positions of the chairman of the board of directors and the CEO in changing auditors to smaller auditors.

Key words:

Change of auditor, corporate governance mechanisms, concentration of ownership, independence of the board of directors and separation of positions. Chairmanship of the board of directors from the managing director

1-1) Introduction

Establishing a joint stock company and opening the ownership of the company for The public has a significant impact on the way companies are run. The market system was organized in such a way that the company owners delegate the management of the company to the company managers. The separation of ownership from management led to the generalization of the "problem of representation" (Qalibaf Asl and Rezaei, 2016). With the separation of ownership and management, managers run the company as representatives of shareholders (Fama and Jensen, 1983). With the formation of an agency relationship, a conflict of interests is created between managers and shareholders and other stakeholders, and it is potentially possible for managers to take actions that are for their own interests and not necessarily for the interests of shareholders and other stakeholders (Babajani and Abdi, 2019). In this issue, the conflict between maximizing the interests of employers and brokers is assumed. Solving the agency problem provides some assurance to the shareholders that the managers are trying to maximize their wealth. Applying supervision and care in this field requires the existence of appropriate mechanisms. Among these mechanisms is the design and implementation of appropriate "corporate governance" in companies and economic enterprises. Experts in economic and accounting sciences in Iran have mostly used the meaning of corporate governance for this word, which translation is not very expressive. Since the use of this word is to create a suitable mechanism for directing and controlling companies and economic enterprises, the closest and most familiar meaning that can be chosen for this word is corporate governance (Sajadi, 2018). The corporate governance system that deals with maintaining the balance between social and economic goals and individual and collective goals, encourages the efficient use of resources and obligates companies to be accountable for fulfilling the duty of stewardship for managing resources. Paying attention to effective corporate governance and increasing efficiency in contracts between stakeholders in order to strengthen the culture of accountability and improve the transparency of information in companies and economic units that all or part of their capital is provided through people, leads to the efficient allocation of resources and ultimately the growth of economic development (Qalibaf Asal and Rezaei, 2016). One of the cases in which the corporate governance system fulfills the duty of protecting and protecting the rights of the beneficiaries by monitoring it. This task is done by monitoring the quality of auditors and also changing, replacing or retaining auditors if necessary. Accordingly, corporate governance has been able to accomplish its mission and goals by changing auditors from small to large auditors or vice versa, or any type of independent auditor who performs the task of monitoring the actions of managers well and improves the quality of financial reporting.In the current research, the researcher seeks to investigate the impact of corporate governance mechanisms on the change and replacement of auditors, so that they can control opportunistic behaviors regarding the relationship between auditors and managers and the deterioration of auditors' independence. For this reason, representatives from the owners took on the task of managing and leading the companies. This issue caused a conflict of interest between the leaders and other stakeholders in the company, and caused some measures to be taken to resolve this conflict of interest. The set of factors that protect the interests of different stakeholders in companies is called corporate governance. The International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development (OECD) in 2001 defined corporate governance as: the structure of relationships and responsibilities among a core group including shareholders, board members and the CEO to promote better competitive performance necessary to achieve the primary goals of the partnership. As it is clear from this definition, OECD tries to describe corporate governance in such a way as to include as many types of different corporate governance systems as possible. In 2004, the International Federation of Accountants (IFAC) defined corporate governance as follows: Corporate governance (business unit governance) is a number of responsibilities and practices used by the board of directors and responsible managers with the aim of determining the strategic direction that ensures the achievement of goals, control of risks and responsible use of resources. Corporate governance refers to the set of methods, policies, and rules governing the correct guidance and control of a company that affects the way a company or organization is run.

- Corporate governance is also called the governance of a business unit or organizational management system. In this way, the existence of corporate governance mechanisms guarantees the interests of investors, creditors, customers and other stakeholders, and the basis for its realization is provided through the adoption of optimal decisions by executive boards and the formulation of applicable laws and regulations. All these cases provide the four main goals of accountability, transparency, justice, fairness and respect for the rights of stakeholders. The issue of corporate governance has been raised since the 1990s in the advanced industrial countries of the world such as America, England, Canada and some European countries. The main goal of corporate governance is to determine the correct controls and supervision between shareholders, the board of directors and executive directors. Beneficiaries will not be provided. The governance of the desirable features makes it possible to provide the necessary incentives for the board of directors and executive managers in such a way that they act in line with the goals of the company and shareholders, in addition to facilitating efficient and effective monitoring and ultimately leading to the optimal allocation of resources. Among the corporate governance mechanisms include the board of directors, the ownership structure, which are investigated in this research, which is briefly described below.

1-2-1) The structure of the board of directors

The primary purpose of establishing the board of directors is to protect the interests of shareholders. Therefore, the aforementioned board is responsible for formulating and approving the goals and plans of the company (which in the long term is to maximize the shareholders' wealth) and is also responsible for evaluating the policies adopted by the management in order to achieve these goals. In order to ensure the proper implementation of the company's long-term plans, the board of directors closely observes and supervises the performance of the executive management and decides on awarding bonuses to managers or punishing them. The success of the aforementioned board in performing its duties, including winning the trust of shareholders on the one hand and proper interaction with the executive management of the company on the other hand, will lead to an increase in the value of the company in the long term (Mashaikhi and Mohdabadi, 2013). Board of Directors)

The size of the board of directors

Separation of duties of the CEO from the chairman and vice chairman of the board of directors

1-2-1-1) The presence of non-commissioned directors in the board of directors

The board of directors is considered one of the important mechanisms of corporate governance and plays an important role in improving the quality of financial reporting and increasing accountability.