The Effect of Internal Auditing on Net Value and Inflation Management in Iranian Companies

Abstract

This study investigates the multifaceted impact of internal auditing on corporate net value and its capacity to mitigate inflationary pressures in the context of Iran's persistent economic instability and chronic inflation. Integrating agency and institutional theoretical frameworks, the study synthesizes global and domestic empirical literature to establish a conceptual basis. The core of this study comprises an original empirical analysis utilizing a panel dataset of 142 firms listed on the Tehran Stock Exchange (TSE) spanning 2012 to 2023, totaling 1,704 firm-year observations. Through the application of fixed-effects panel regression and two-stage least squares (2SLS) instrumental variable estimation, the evidence demonstrates that superior internal audit function (IAF) quality is positively and significantly correlated with Tobin's Q (β=0.142,p<0.01β= 0.142,p<0.01) and economic value added (EVA) (β=0.098,p<0.05β=0.098,p<0.05). Furthermore, the interaction between IAF quality and inflation rates is found to yield positive effects on operating cash flow (β=0.187,p<0.01β=0.187,p<0.01) and stock returns (β=0.112,p<0.05 β=0.112,p<0.05), suggesting that a high-caliber IAF serves as a critical mechanism for neutralizing the adverse consequences of inflation. The study further establishes that earnings adjusted for inflation under IAS 29 are 23–31% lower than historical cost earnings, thereby underscoring the substantial materiality of inflationary distortions. These results offer vital implications for regulatory bodies, standard-setters, and practitioners of corporate governance in volatile economies."