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Investigating the relationship between financial statement renewal and the growth of companies listed on the Tehran Stock Exchange

Number of pages: 65 File Format: word File Code: 29773
Year: 2014 University Degree: Master's degree Category: Librarianship
Tags/Keywords: Annual adjustments - Asset growth - Net profit growth - Sales growth - stock exchange - Tehran Stock Exchange - Tolerable growth
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  • Summary of Investigating the relationship between financial statement renewal and the growth of companies listed on the Tehran Stock Exchange

    Master's Thesis in Accounting

    Abstract

    Investigation of the relationship between the renewal of financial statements and the growth of companies

    accepted in the Tehran Stock Exchange

    Renewed financial statements presented in a transparent and clear way, a message and a sign about the unreliability of financial statements Financials of previous periods are sent to users. Therefore, re-presentation of financial statements will have destructive effects. This research examines the relationship between financial statement renewal and the growth of companies admitted to the Tehran Stock Exchange. For this purpose, 70 companies admitted to the Tehran Stock Exchange during the period of 2014 to 2014 were examined. Multivariate linear regression statistical analysis has been used to test research hypotheses. According to the results of the hypotheses test, there is a significant negative relationship between the renewal of financial statements and the sales growth of companies listed on the Tehran Stock Exchange; But there is no evidence of the relationship between restatement of financial statements and net profit growth, asset growth and sustainable growth. Also, the results of the hypotheses show that the size and profitability of the company have a direct relationship with growth indicators; But the company's dividend has an inverse relationship with most of the growth indicators.

    Key words: annual adjustments, asset growth, net profit growth, sales growth, sustainable growth.

    Introduction

    According to the theoretical concepts of financial reporting in Iran, the purpose of financial statements is to provide summarized and classified information about the financial status, financial performance and financial flexibility of the business unit. is to be useful for a wide range of users of financial statements in making economic decisions. The main quality characteristics related to information content are "relevance" and "reliability" and the main quality characteristics related to information presentation are "comparability" and "comprehensibility". Information that lacks these characteristics is not useful or has limited utility. Since the qualitative characteristics of comparability and comprehensibility add to the usefulness of information, the existence of stability of the accounting procedure in the used accounting methods and proper disclosure of information is required (Committee for Compilation of Accounting Standards, 1388: 14). Iran's accounting standards stipulate that companies must present and disclose financial statement figures in a comparative manner with the current year's figures (Committee for Compilation of Accounting Standards, 2018). Based on this, the figures of the previous year have been reviewed and classified once again by the company and the auditor, and if there is an important mistake in the nature and method of classification, as well as the amounts of the previous year, they should be presented again this year. In this way, renewal can be interpreted as the existence of a defect or form that has been discovered in the current year; Of course, provided that it is not caused by a change in accounting procedures. Studies also show that a high percentage of re-presentation in Iran was due to the correction of accounting mistakes (Kordestani et al., 2019).

    Creating an atmosphere of mistrust in the capital market, the unreliability of financial statements, attempts to access information outside the stock market, losses caused by the wrong decisions of users of financial statements, and finally the destruction of public resources of the society are part of the consequences of this (ibid). Therefore, the continuous renewal of items in successive periods and its prevalence among Iranian companies harms the credibility of financial statements and causes inefficient allocation and distribution of wealth and reduces people's trust in the capital markets (Bahar Moghadam and Dolatabadi, 2013). Financial states that the users of financial statements should be able to compare the financial statements of the business entity over time to identify changes in the financial status, financial performance and financial flexibility of the business entity. Users should also be able to compare the financial statements of different business units to measure their financial status, financial performance and financial flexibility. Thus, it is necessary to measure and present the effects of transactions and other similar events within a business unit and over time for that business unit with a stable procedure, and between different business units, the coordination of the procedure regarding the measurement and presentation of similar issues should be observed (Accounting Standards Development Committee, 2018: 767).However, due to continuous changes in economic and social conditions, changes in accounting principles and methods, and due to the complexity and high volume of business transactions, the occurrence of mistakes in financial reporting, and as a result the re-presentation of published financial statements seems inevitable (Noisi et al., 2014). Clause 40 of Accounting Standard No. 6 of Iran requires that if there is a change in the accounting procedure, the comparative figures of previous years must be re-presented based on the new procedure. Also, paragraph 42 of the same standard states that the correction of the mistake must be accompanied by the re-presentation of the figures of the financial statements of the previous year(s). Paragraph 39 of Iran Accounting Standard No. 1 also requires that in cases where the presentation or classification of items in financial statements is modified, in order to ensure the comparability of financial statement items, comparative amounts must be reclassified unless this is not possible [1]. In other words, it causes investors to lose confidence in the credibility and competence of management and reduce the quality of reported profits. In fact, the updated financial statements provide a clear and explicit message and signal about the unreliability of the financial statements of the past periods and their low quality. Therefore, following the re-presentation, investors' expectations regarding future cash flows and their expected rate of return will change (Kazemi, 2019). Restatement of financial statements harms the contractual relationship between the company and external parties such as the company's customers and suppliers, which has a negative effect on the company's cash flows. This negative effect on cash flows reduces the amount of internal sources of cash available for investment, which reduces the growth of the company. Also, renewal reduces firm growth due to increased cost of external financing (Elbring et al., 2013). Therefore, the question is raised whether there is a significant relationship between the renewal of financial statements and the growth of companies admitted to the Tehran Stock Exchange or not? They include 7% of the total statistical population of the research (Hay and Sandfour[3], 2007; General Accounting Organization[4], 2002), but during the period 1383 to 1389, more than 70% of the companies admitted to the Tehran Stock Exchange have re-presented their financial statements (Nikbakht and Rafiei, 1391: 181). Restatements in the financial statements of Iranian companies have become common in such a way that annual adjustments [5] are mentioned as one of the relatively stable elements in the turnover of the accumulated profit (loss) account. The increase in restatement indicates that the published financial statements of the previous period or periods, which are approved by users to make decisions, are incorrectly presented and unreliable (Wilson [6], 2008). On the other hand, increasing income and profit growth is one of the ways to attract investors to the company (Fakhari and Yousefnejad, 2015: 90) and growth is a prelude to achieving sustainable profitability. Therefore, conducting research focusing on the relationship between financial statement restatement and company growth is important.

    1-4- Research objectives

    Graham[7] and colleagues (2008) argue that restatement is potentially very costly for existing companies. A restatement may undermine investor confidence in the reliability of the company's disclosures, dampen demand for the company's securities, and limit opportunities for the company, resulting in significant damage to the company's market value. Considering the negative consequences of restatement of financial statements, the aim of this research is to investigate the relationship between restatement of financial statements and the growth of companies admitted to the Tehran Stock Exchange.

  • Contents & References of Investigating the relationship between financial statement renewal and the growth of companies listed on the Tehran Stock Exchange

    List:

    Table of Contents

    Page Title

    Chapter One: General Research. 1

    1-1- Introduction. 2

    1-2- Research problem. 2

    1-3- Importance and necessity of research. 4

    1-4- Research objectives. 4

    1-5- Research question. 4

    1-6- research hypotheses. 5

    1-7- Research method. 5

    1-7-1- Research method and data collection 5

    1-7-2- Research variables. 5

    1-7-3- Statistical population and research sample. 6

    1-7-4- Data analysis method 6

    1-7-5- Users of research results. 6

    1-8- Definition of key words. 7

    1-9- Research structure. 7

    Chapter Two: Theoretical foundations and research background. 8

    2-1- Introduction. 9

    2-2- Theoretical foundations of research. 9

    2-2-1- The concept of financial information reporting. 9

    2-2-2- Re-presentation of financial statements, reasons and its division. 10

    2-2-3- Issues related to the renewal of financial statements. 12

    2-2-3-1- low credibility of management. 13

    2-2-3- 2- perception gap. 13

    2-2-3-3- The effect of revealing part of the ambiguities regarding the re-presentation (impact on a wide range) 13

    2-2-3- 4- Disturbance in the company's communication and response. 13

    2-2-3- 5- Lack of alignment between management, auditors and other officials. 14

    2-2-4- Consequences of renewing financial statements. 14

    2-2-4-1- Market reaction to re-presentation. 15

    2-2-4-2- Corporate governance changes. 16

    2-2-4-3- Reducing the trust of society towards auditors' comments. 16

    2-2-4-4- reduction of company growth. 17

    2-2-5- Renewal and growth of the company. 17

    2-3- The background and history of the research subject. 18

    2-3-1- The external background of the research. 18

    2-3-2- The internal background of the research. 20

    2-4- chapter summary. 23

    Chapter three: Research implementation method. 24

    3-1- Introduction. 25

    3-2- Research method. 25

    3-3- Research hypotheses. 25

    3-4- Research variables. 26

    3-4-1- independent variable. 26

    3-4-2- Dependent variables. 26

    3-4-3- control variables. 27

    3-5- Research model. 28

    3-6- Research scope. 29

    3-7- Statistical population and research sample. 29

    3-8- Data collection method 30

    3-9- Data analysis method and hypothesis testing 30

    3-10- Data analysis tool 30

    3-11- Chapter summary. 31

    Chapter Four: Data Analysis 32

    4-1- Introduction. 33

    4-2- Descriptive statistics. 33

    4-3- Stability (reliability) of research variables. 34

    4-4- Test of research hypotheses. 35

    4-4-1- Testing the first hypothesis. 35

    4-4-2- Second hypothesis test. 37

    4-4-3- Test of the third hypothesis. 38

    4-4-4- Testing the fourth hypothesis. 39

    4-5- chapter summary. 41

    Chapter five: discussion and conclusion. 42

    5-1- Introduction. 43

    5-2- An overview of the results obtained from the research. 43

    5-3- Stability or reliability. 43

    5-4- Summary of the results of the hypothesis test 44

    5-4-1- Summary of the results of the first hypothesis test. 44

    5-4-2- Summary of the results of the second hypothesis test. 44

    5-4-3- Summary of the results of the third hypothesis test. 44

    5-4-4- Summary of the results of the fourth hypothesis test. 45

    5-5- General results of the research. 45

    5-6- Research suggestions. 46

    5-6-1- Suggestions from the research results. 46

    5-6-2- Suggestions for future research. 46

    5-7- Research limitations. 46

    Resources. 48

    a) Internal sources. 48

    b) External sources. 50

    Source:

    Sources

    A) Internal sources

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    Bahar Moghadam, Mehdi and Mahdie Dolatabadi (2013)." Comparative study of the quality of reported profit with restated profit", Journal of Accounting and Auditing Research, No. 14, pp. 1-19.

    Bolo, Qasim; Hassas Yeganeh, Yahya and Sohail Momeni (2011). "The effect of financial statement re-presentation on earnings management and earnings sustainabilityThe effect of restatement of financial statements on profit management and profit sustainability, Quarterly Journal of Experimental Studies of Financial Accounting, No. 33, pp. 73-96.

    Piri, Parviz; Imani Barandagh, Mohammad and Siamakullah Vardizadeh (2010). "The effect of different stages of the life cycle on the profitability and growth of commercial enterprises", Experimental Accounting Research, No. 2, pp. 49-46.

    Thaghafi, Ali; Amiri, Maqsood; and Hossein Kazemi (1390). "Empirical study on the informational content of profit following the restatement of financial statements", New Accounting Theory Quarterly, No. 1, pp. 1-22.

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    Khajawi, Shekrale, Behpour, Sajjad, Mumtazian, Alireza and Mohsen Salehinia (2013). "Investigating the mutual relationship between the growth and profitability of companies listed in the Tehran Stock Exchange using the system of simultaneous equations", Accounting and Auditing Reviews, Volume 21, Number 1, pp. 73-88.

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    Saei, Mohammad Javad; Bagherpour Valashani, Mohammad Ali and Seyyed Nasser Mousavi Baighi (2011). "Investigating the frequency and importance of financial statement renewal", Financial Accounting Research, 5th year, 1st issue, pp. 67-86.

    Shariatpanahi, Seyed Majid and Hossein Kazemi (2009). "Effect of re-presentation of financial statements on profit information content", Accounting Studies Quarterly, No. 26, pp. 1-28.

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    Abdul Khaliq, Rashad; and Bepin b. Ajin Kia (1379). Empirical research in accounting: a methodological perspective. Translated by Mohammad Namazi, first edition, Shiraz: Shiraz University Press. "Investigating the relationship between systematic risk and profit growth of companies in the Tehran Stock Exchange", Accounting and Auditing Reviews, No. 45, pp. 89-109.

    Kordestani, Gholamreza; Azad, Abdullah and Mehbooba Kazemi (2009). "Experimental test of the importance of annual adjustments in the capital market", Journal of Accounting Research, No. 8, pp. 62-73.

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Investigating the relationship between financial statement renewal and the growth of companies listed on the Tehran Stock Exchange
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