Investigating the effect of the quality of internal audit performance on the accuracy of profit forecasting by managers of companies listed on the Tehran Stock Exchange

Abstract

Purpose: The purpose of this research is to investigate the effect of the quality of internal audit performance on the accuracy of managers' profit forecast. Methodology: The data of 136 companies listed on the Iran Stock Exchange were used during the years 2017 to 2021. Hypotheses were tested by multiple regression method considering the fixed effects of year and industry. Findings: The results of the statistical tests showed that there is a significant relationship between the quality of the internal audit and the accuracy of the company's profit forecast. Originality: Management forecasts are disclosures made by companies to communicate information about their future performance to shareholders. These disclosures are voluntary and are intended to reduce information asymmetry between management and shareholders. Inaccurate forecasts can be very costly for managers and question the credibility of managers and show managerial incompetence. The quality of the internal audit function reduces the likelihood of erroneous, biased, or incomplete information in management reports that managers use to improve their profit forecasts.</p