Audit Quality and Earnings Forecast Error: As an Auditor Ranking Criterion

Abstract

A firm's profitability prediction provides valuable information that helps investors to make optimal decisions. Like other information, the value of these predictions depends on the reliability of information they provide. This research examines the effect of the auditor's rating and its quality control points as criteria of audit quality, on earning forecast error rate. The sample consists of 119 firms listed in Tehran Stock Exchange during the period from 2012 to 2015. The results indicate that there is a significant negative relation between audit firms A and the earning forecast error. The results also show a significant positive relation of earnings forecast error to the returns on asset rate and financial leverage and also no significant relation of earnings forecast error to the auditor's rating and the type of auditor's opinion variables

Keywords

• earnings forecast error
• auditor ranking
• Audit quality