Political connections and audit report lag: Indonesian evidence

Ahsan Habib (Department of Accounting, Massey University, Auckland, New Zealand)
Abdul Haris Muhammadi (Directorate General of Taxes, Ministry of Finance, Jakarta, Indonesia)

International Journal of Accounting & Information Management

ISSN: 1834-7649

Publication date: 5 March 2018

Abstract

Purpose

This paper aims to investigate the association between political connections and the audit report lag and whether related party transactions moderate the association between the two.

Design/methodology/approach

An ordinary least square regression is estimated whereby audit report lag is regressed on political connections, related party transactions and the interaction between the two. Data on the number and amounts of RPTs are hand-collected from audited financial reports. A firm-year observation is politically connected if at least one large shareholder (controlling at least 10 per cent of the votes directly or indirectly) or board member or commissioner is a current or former Member of Parliament, a minister or head of local government or closely related to a politician or party.

Findings

Findings show that the audit report lag is relatively short for politically connected firms but increases when such firms conduct both operating and loan-type related party transactions. This suggests that auditors understand the incentives for, and the implications of, related party transactions and hence exert additional audit efforts in scrutinizing financial statements: activities that will increase the audit report lag.

Originality/value

Although a large body of empirical research exists on the determinants of audit report lag, none has examined the impact of political connections. This paper further contributes to the auditing literature by documenting auditors’ evaluation of related party transactions in a developing country.

Keywords

Citation

Ahsan Habib and Abdul Haris Muhammadi (2018) "Political connections and audit report lag: Indonesian evidence", International Journal of Accounting & Information Management, Vol. 26 No. 1, pp. 59-80

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DOI

: https://doi.org/10.1108/IJAIM-08-2016-0086

Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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