Effective factors in the selection of inventory accounting methods and its impact on the quality of profitability of companies admitted to the stock exchange.

Dissertation for Master's Degree

Direction: Accounting

Abstract

The present research work is to determine the effective factors in the selection of inventory accounting methods and its effect on the quality of profitability of companies admitted to the stock exchange.

This thesis prepares a framework for analyzing the selection of managers from the inventory accounting policy and the impact that these choices have on the quality of profitability in companies listed on the stock exchange, and describes the relationship between the specific characteristics of the company such as size, debt-to-capital ratio, working capital, and the type of industry and the selection policies of managers from inventory accounting and the times that lead to an increase/decrease in the quality of profit.

The results of the analysis of the hypotheses indicate that there is no significant relationship between the choice of inventory accounting methods and company size, debt-to-capital ratio, and the amount of working capital. Also, the results indicate the existence of a relationship between inventory accounting choices and the type of industry, and finally, there is no significant relationship between inventory accounting choices (FIFO) and profitability. It affects the distribution of wealth. People invest in joint stock companies hoping to increase their wealth. The accounting methods used have an effect on the wealth of investors.

The choice of accounting methods is used to increase the welfare of shareholders and maximize the welfare of management. Accounting literature includes studies that test the relationships between specific variables of the company and the policy of accounting selection by managers. Most of these studies rely on cross-sectional studies or experimental designs of paired comparisons and emphasize the relationship between the accounting selection method and various company-specific characteristics. Choosing among the different assumptions of inventory valuation and the effect it has on the quality of profitability of the business unit is an example of accounting choices. People invest in joint stock companies hoping to increase their wealth. The accounting methods used affect the wealth of investors. The choice of accounting methods is used to increase the well-being of shareholders and maximize the well-being of management. Accounting literature includes studies that test the relationships between company-specific variables and the policy of accounting choices by managers. Most of these studies rely on cross-sectional studies or experimental designs of paired comparisons and emphasize the relationship between the accounting selection method and various company-specific characteristics. Choosing among different assumptions for inventory valuation and the impact it has on the quality of profitability [3] of the business unit is an example of accounting choices. One of the most important factors that the Gradient analytical group has considered in evaluating the quality of profit is the inventory of materials and goods. The quality of measuring the company's inventory directly depends on the conservatism [4] and impartiality [5] in calculating the cost of goods sold. In particular, if a company's cost of goods sold is understated, then the company's profitability is overstated, and vice versa. When evaluating the quality of inventory measurement, the most important things that should be considered and reviewed are: the level and change in total inventory compared to sales, the trend of sales margin, the method of evaluating inventory and how it affects the reported profit, the relationship between different types of inventory accounts such as raw materials, goods in progress and manufactured goods, the company's method of measuring and presenting inventory compared to other companies in the industry. Measured the decisions of the management in the selection of inventory accounting methods and tested the effect of that choice on the quality of profit.

The specific characteristics of the company with the following meanings are tested in this research:

Company size[6]: Net sales of the company

Leverage ratio[7]: Dividing total liabilities by equity

Working capital ratio[8]: Asset difference current and current liabilities

Industry type [9]: Classification of listed companies

1 Statement of the problem

According to the accepted methods, managers have the authority to make accounting choices, and these authorities redistribute wealth among the parties to the contract, in this case they say managers They may act opportunistically. The policy of choosing inventory accounting methods, which is one of the accounting choices, leads to different profits and different tax reserves, which may be the characteristics of the company in the accounting selection policy. Also, these choices cause different cash flows in the company. In other words, can the size of the company, the amount of debt to capital, the amount of working capital and the type of industry be effective in choosing accounting methods or not? And what effect has the chosen method had on profitability.

4-1 research hypotheses

Establishment and explanation of the correct hypothesis is the beginning of the path that is named the scientific method. The hypothesis itself is the result of studies and detailed investigations on the findings of the predecessors who laid the theoretical foundations of a field of science. One of the characteristics of a hypothesis is the possibility of a double answer to a question, which is expressed as a hypothesis (H0) and an alternative hypothesis (H1). Therefore, it can be said that the hypothesis is something that the researcher is looking for and it is a smart and scientific guess about the outcome of the research (Pasha Sharif, 1387, p. 87)[1].

Since the purpose of this research is to determine the factors affecting the choice of inventory accounting methods, the research hypotheses are stated as follows:

Size hypothesis [2]:

"Inventory accounting methods are different according to the different sizes accepted in the stock exchange."

Debt-to-capital ratio hypothesis[3]:

"There is a significant relationship between inventory accounting choices and debt-to-capital ratio."

The capital hypothesis in Circulation[4]:

"There is a significant relationship between inventory accounting choices and working capital."

Industry Type Hypothesis[5]:

"Inventory accounting methods are different according to the type of industry in listed companies."

Comparison Hypothesis[6]:

"There is a significant relationship between the choice of FIFO accounting method and profitability."

5-1 The necessity of conducting research

A review of research on financial reporting in the international scene shows that many research works are currently dedicated to developed countries and in socialist countries and in Currently, the development of accounting research has been less (Mick and Sudagaran, 1990, p. 147) [7]. Therefore, they stated that there is more literature on accounting and reporting methods in socialist countries than in developing countries. By reviewing the accounting research done in Iran, we came to the conclusion that no research has been done on accounting choices, so the need for research in this category is felt in the country. This research can be a starting point for the analysis of the company's financial accounting and the way of reporting in Iran, especially with the aspect of managers' preferences in changing the company's accounting policies.