Financial Restatements on Auditors’ Job Mental Pressure: A Test of Tournament Incentives Theory

Document Type : Original Article


1 Department of Accounting, Kish International Branch, Islamic Azad University, Kish Island, Iran

2 Department of Accounting, South Tehran Branch, Islamic Azad University, Tehran, Iran


According to the agency theory, in order to reduce the agency conflicts and problems, the appropriate control mechanisms must be adopted so that the CEO steps towards the shareholders’ interests and helps them to improve the transparency of financial reporting and reduce the financial restatement. Under this condition, in addition to increase the level of transparency and decision making power of the shareholders and investors, the auditors’ mental pressure level regarding the corporate financial performance is also increased. This causes that the reports can be presented more timely without the need for yearly financial restatements. The purpose of the present research is to study the effect of financial restatements on auditors’ job mental pressure by mediating the CEO’s tournament incentives. A total of 97 companies in Tehran Stock Exchange were surveyed between the years of 2014-2018. In order to test and analyze the research hypotheses, multiple regression relying on testing classic hypotheses was used. The results showed that financial restatement has a positive and significant effect on auditors’ job mental pressure. Also it was found that the CEO’s tournament incentives reinforce negatively the positive effect of financial restatement on auditors’ job mental pressure.


  • Abdoli, M, R., Faal Ghayomi, A., Partoee, N. (2013). The effect of auditor characteristics on financial restatements. Accounting and auditing reviews, 20(3): 85-100. (In Persian)
  • Agoglia, C. , Brazel, J. F., Hatfield, R. C., Jackson, S. B. (2010). How do audit work paper reviewers cope with the conflicting pressures of detecting misstatements and balancing client workloads? Auditing: J. Practice Theory 29 (2), 27–43.
  • Bebchuk, L. A., Cremers, K. M., & Peyer, U. C. (2011). The CEO pay slice. Journal of Financial Economics, 102(1), 199–221.
  • Bloom, M., & Michel, J. G. (2002). The relationships among organizational context, pay dispersion, and among managerial turnover. Academy of Management Journal, 45(1), 33–42.
  • Bognanno, M. L. (2001). Corporate tournaments. J. Labor. Econ. 19, 290–315.
  • Brockman, P., X. Martin, and E. Unlu. (2010). Executive compensation and the maturity structure of corporate debt. Journal of Finance 65 (3): 1123–1161.
  • Chang, W, Ch., Chen, Y, Sh., Chou, L, T, L., Ko, Ch, H. (2016). Audit Partner Disciplinary Actions and Financial Restatements, Journal of Accounting, Finance and Business Studies, 52(2): 286-318.
  • Chen, J., Ezzamel, M., & Cai, Z. (2011). Managerial power theory, tournament theory, and executive pay in China. Journal of Corporate Finance, 17(4), 1176–1199.
  • Conyon, M. J., & He, L. (2011). Executive compensation and corporate governance in China. Journal of Corporate Finance, 17(4), 1158–1175.
  • Dutta, I., Dutta, Sh., Raahemi, B. (2018). Detecting Financial Restatements Using Data Mining Techniques, Expert Systems With Applications, doi: 10.1016/j.eswa.2017.08.030
  • Dwyer, D. J., Ganster, D. W. (1991). The effects of job demand and control on employee attendance and satisfaction. J. Org. Behav. 12 (7), 595–608.
  • Elovainio M, Heponiemi T, Kuusio H, Jokela M, Aalto A-M, Pekkarinen L, et al. (2015). Job demands and job strain as risk factors for employee wellbeing in elderly care: an instrumental-variables analysis. Eur J Public Health;25(1):103–8.
  • Elstad JI, Vabø M. (2008). Job stress, sickness absence and sickness presenteeism in Nordic elderly care. Scand J Public Health,36(5):467–74.
  • Eriksson, T. (1999). Executive compensation and tournament theory: Empirical tests on Danish data. Journal of Labor Economics, 17(2): 262–280.
  • Fletcher, B. C., Jones, F. (1993). A refutation of Karasek’s demand-discretion model of occupational stress with a range of dependent measures. J. Org. Behav. 14 (4), 319–330.
  • Fredrickson, J.W., Hambrick, D.C., Baumrin, S. (1988). A model of CEO dismissal. Acad. Manage. Rev. 13 (2), 255–270.
  • F., Van Riel C., & Berens, G. (2006). Avoiding reputation damages in financial restatements. Long Range Planning, 39 (3): 429-456
  • Gomulya, D., & Boeker, W. (2014). How firms respond to financial restatement: CEO successors and external reactions. Academy of Management Journal, 57(6); 1759–1785.
  • Heidari, M, (2014). To investigate the relationship between the financial restatement and the change of independent auditors, Experimental Research of Accounting, 3(4):197-215
  • Hennes, K, M., Leone, A, J., Miller, B, P. (2010). Accounting Restatements and Auditor Accountability, the University of Miami. Working paper.
  • Huang, W., & Boateng, A. (2017). Executive shareholding, compensation, and analyst forecast of Chinese firms. Applied Economics, 49(15), 1459–1472.
  • Janssen, O. (2001). Fairness perceptions as a moderator in the curvilinear relationships between job demands, and job performance and job Acad. Manage. J. 44 (5), 1039–1050.
  • Jia, N. (2018). Tournament incentives and audit fees, Journal of Accounting and Public Policy,
  • Jones, A., III, Norman, C., & Wier, B. (2010). Healthy lifestyle as a coping mechanism for role stress in public accounting. Behavioral Research in Accounting, 22(1), 21-41.
  • Jusoh, R., Ibrahim, D. N., & Zainuddin, Y. (2008). The performance consequence of multiple performance measures usage. International Journal of Productivity and Performance Management, 57(2), 119-136.
  • Kachelmeier, S. J. (2010). Introduction to a forum on Individual Differences in Accounting Behavior. The Accounting Review, 85 (4): 1129-1130.
  • Kale, J. R., Reis, E., & Venkateswaran, A. (2009). Rank-order tournaments and incentive alignment: The effect on firm performance. The Journal of Finance, 64(3), 1479–1512.
  • Karasek, R. A. (1979). Job demands, job decision latitude, and mental strain: implications for job redesign. Adm. Sci. Q. 24 (2), 285–307.
  • Khajavi, S, h., Ghadrian, M, H. (2015). “To investigate the effect of profit quality on financial restatements”, Accounting advances, 7(2): 54-89. (In Persian)
  • Lajmi, A. and M. R. Gana (2011). “Board Characteristics and External Audit Quality: Complementary or Substitute Mechanisms? The Belgium Case”, International Journal of Management Sciences and Business Research,  2, No. 3, pp. 68-75.
  • Landsbergis, P. L. (1988). Occupational stress among health care workers: a test of the job demand-control model. J. Org. Behav. 9 (3), 217–239.
  • Lazear, E. P., & Rosen, S. (1981). Rank-order tournaments as optimum labor contracts. Journal of Political Economy, 89(5), 841–864.
  • Lev, B. (2003). Corporate earnings: Facts and fiction. Journal of Economic Perspectives, 17 (2), 27-50.
  • Liao, L., Liao, G. M., & Shen, H. B. (2009). Operating risk, promotion incentive and corporate performance. China Industrial Economics, 8, 119–130.
  • Lin, B., & Lu, R. (2009). Managerial power, compensation gap and firm performance Evidence from Chinese public listed companies. Global Finance Journal, 20(2):153–164.
  • Lo´pez, D. , Peters, G. F. (2012). The effect of workload compression on audit quality. Auditing: J. Practice Theory 31 (4), 139–165.
  • Moradi, J, Ghadirian Arani, M, H. (2017). Management overconfidence and financial restatements, Evidence of Tehran Stock Exchange, Journal of Shiraz University’s accounting advances. 9(1):169-192
  • Morgan DG, Semchuk KM, Stewart NJ, D’Arcy C. (2002). Job strain among staff of rural nursing homes: A comparison of nurses, aides, and activity workers. J Nurs Adm, 32(3):152–61.
  • Palmrose, Z, V., Richardson, V., Scholz. S. (2004). Determinants of market reactions to restatement announcements. Journal of Accounting and Economics, 37(1): 1–31.
  • Palmrose, Z. V. & Scholz, S. (2004). The circumstances and legal consequences of non-GAAP reporting: Evidence from restatements. Contemporary Accounting Research, 21 (1), 139-180
  • Pourzamani,Z; Tarazian, A,(2016), “The interaction of asset returns and returns on securities fluctuations on CEOs’ compensation based on the growth rate of cash assets; Accounting and Auditing reviews, 33(1): 55-72. (In Persian)
  • Soobaroyen, T., Chengabroyan, C. (2006). Auditors’ perceptions of time budget pressure, premature sign offs and under-reporting of chargeable time: evidence from a developing country. Int. J. Auditing 10 (3); 201–218.
  • Stanley, J. D., DeZoort, F, T. (2007). Audit firm tenure and financial restatements: An analysis of industry specialization and fee effects. Journal of Accounting and Public Policy 26: 131–159.
  • Willemse BM, de Jonge J, Smit D, Depla MF, Pot AM. (2012). The moderating role of decision authority and coworker-and supervisor support on the impact of job demands in nursing homes: a cross-sectional study. Int J Nurs Stud; 49(7):822–33.
  • Woodland, A. M., & Reynolds, J. K. (2003). Restatements and audit quality. Retrieved from
  • Wu, M. (2002). Earnings restatements: A Capital Market Perspective. Working Paper, Available at SSRN:
  • Xu, C., (1999). Work stress system: mechanism, handling and management. J. Zhejiang Normal Univ.: Social Sci. 5, 69–73
  • Yan, H., Xie, Sh. (2017). How does auditors’ work stress affect audit quality? Empirical evidence from the Chinese stock market, China Journal of Accounting Research 9; 305–319.
  • Zhang, H., Huang, H, J., Habib, A. (2018). The Effect of Tournament Incentives on Financial Restatements: Evidence From China, International Journal of Accounting,