The Effect of Economic Policy Uncertainty on Audit and Financial Reporting Quality: A Case Study of the Emerging Market of Iran

Abstract

This research focuses on the role that Economic Policy Uncertainty (EPU) plays in creating adverse effects on the quality of financial information and the profitability of firms, with an emphasis on identifying the relationships and effects thereof on Audit Quality (AQ) and Financial Reporting Quality (FRQ) to achieve a proper understanding by financial statement users. Therefore, the objective of this research is to examine the relationship between EPU, AQ, and FRQ. Multiple regression analysis was used to test the research hypotheses. The statistical population consisted of 110 companies listed on the Tehran Stock Exchange during 2013-2022 (1100 observations). EPU was tested using two indicators: inflation rate changes and exchange rate changes. The research results indicate a significant positive relationship between EPU based on the inflation rate changes index, AQ, and FRQ. However, the results show no significant relationship between EPU based on the exchange rate changes index, AQ, and FRQ.