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Article
Publication date: 27 April 2020

Mazen Al-Mulla and Michael E. Bradbury

This paper is motivated by the Financial Markets Authority’s (FMA) investigation into reporting delays of New Zealand issuers. The purpose of this paper is to provide…

Abstract

Purpose

This paper is motivated by the Financial Markets Authority’s (FMA) investigation into reporting delays of New Zealand issuers. The purpose of this paper is to provide regulators with systematic evidence on firm specific characteristics associated with reporting delay. The paper examines the audit report lag (ARL), the financial report lag and the corresponding interim report lags for a large sample of New Zealand listed firms.

Design/methodology/approach

Because of the small sample we report bivariate correlations. Together with OLS regression, we examine the association between reporting delay and firm characteristics (e.g., size, complexity, governance) that capture the supply and demand for timely audited financial reports. We choose a period immediately prior to the FMA enforcement of reporting delays to capture the voluntary choice of reporting timeliness by managers.

Findings

The audit lag (i.e. balance date to preliminary announcement to the NZX) is longer than the report lag (i.e. preliminary announcement date to the issuance of the report to the NZX). We find that audit risk factors (leverage and finance firms) and busy reporting period are associated with longer audit lag. Whereas, having a Big 4 auditor and an interim review reduces annual audit lag. Investor demand factors are associated with a shorter report lag. Firms with a loss and more segments have a shorter report lag, while firms with high market to book ratio have a longer report lag. These are consistent with agency and proprietary cost explanations. The interim report lag is only seven days shorter than the annual lag. The determinants of annual report lag provide weak explanations for the interim report lags.

Research limitations/implications

Although all listed companies are sampled, the small sample size reduces the power of the analysis and may limit finding significant results at conventional levels.

Practical implications

The factors associated with reporting delays could be used by regulators as red flags to identify abnormal reporting delays. Interim reporting lags appear excessively relative to annual report lags. Therefore, regulators should investigate the reasons for the lack of timeliness of interim reports.

Social implications

Report timeliness is an important, but often overlooked, component of accounting quality. The major social implication is that timely reporting reduces information asymmetry between managers and shareholders and other stakeholders. Making better, timelier decisions ought to increase the wealth and welfare of investors and other stakeholders.

Originality/value

There are many studies on reporting delay. However, prior evidence on reporting delay in New Zealand is pre-IFRS and pre-recent regulatory reforms (such as the formation of the FMA). Hence, our contribution is to provide more contemporary-relevant evidence. We also distinguish between ARL and the financial report lag and found that different firm characteristics drive these lags. We also examine the interim reporting lag.

Details

Pacific Accounting Review, vol. 32 no. 3
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 28 January 2020

Md. Borhan Uddin Bhuiyan and Mabel D’Costa

This paper aims to examine whether audit committee ownership affects audit report lag. Independent audit committees are responsible for overseeing the financial reporting

Abstract

Purpose

This paper aims to examine whether audit committee ownership affects audit report lag. Independent audit committees are responsible for overseeing the financial reporting process, to ensure that financial statements are both credible and released to external stakeholders in a timely manner. To date, however, the extent to which audit committee ownership strengthens or compromises member independence, and hence, influences audit report lag, has remained unexplored.

Design/methodology/approach

This paper hypothesizes that audit committee ownership is associated with audit report lag. Further, the author hypothesize that both the financial reporting quality and the going concern opinions of a firm mediate the effect of audit committee ownership on audit report lag.

Findings

Using data from Australian listed companies, the author find that audit committee ownership increases audit report lag. The author further document that financial reporting quality and modified audit opinions rendered by external auditors mediate this positive relationship. The results are robust to endogeneity concerns emanating from firms’ deliberate decisions to grant shares to the audit committee members.

Originality/value

The study contributes to both the audit report timeliness and the corporate governance literatures, by documenting an adverse effect of audit committee ownership.

Details

International Journal of Accounting & Information Management, vol. 28 no. 1
Type: Research Article
ISSN: 1834-7649

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Article
Publication date: 28 March 2018

Wan Nordin Wan Hussin, Hasan Mohamad Bamahros and Siti Norwahida Shukeri

Motivated by a recent call from DeFond and Zhang (2014) for auditing scholars to use “a richer set of audit firm, auditor office, and individual auditor characteristics to…

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Abstract

Purpose

Motivated by a recent call from DeFond and Zhang (2014) for auditing scholars to use “a richer set of audit firm, auditor office, and individual auditor characteristics to capture competency”, this study aims to extend the related line of research by examining the association between lead engagement partner workload, defined as the number of public listed clients the partner is in charge of, and audit lag. The moderating effects of partner tenure on the partner workload–audit lag relationship have also been examined.

Design/methodology/approach

The association between auditor workload and financial reporting timeliness on 651 non-financial firms listed on Bursa Malaysia is tested in this study. Data to compute the partner workload are based on 222 lead engagement partners who signed off the audit reports for all 892 public listed firms in 2013.

Findings

The busy auditors are observed to prolong audit lags, and the effect is more acute for non-Big 4 clients, busy season clients and a short partner tenure. The engagement partners with heavy workload can also mitigate the adverse effects of reduced audit report timeliness when they have a longer partner–client tenure.

Research limitations/implications

This study may understate the level of engagement partner workload when partners have private firms in their client portfolios. Notwithstanding that, this study reiterates the growing importance of examining accounting and auditing outcomes at the individual partner level.

Practical implications

The findings that over-burdened engagement partner takes a longer time to complete the audit add to the current debate, where audit regulators and various stakeholders are actively promoting discussions on potential indicators of audit efficiency and quality.

Originality/value

This study provides new evidence on the association between partner workload and audit reporting lag, which has hitherto been unexplored. This study also extends the research carried out by Gul et al. (2017) and Sharma et al. (2017) by providing additional evidence on the relationship between partner tenure and audit delay.

Details

Managerial Auditing Journal, vol. 33 no. 3
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 2 May 2017

Rusmin Rusmin and John Evans

The purpose of this paper is to empirically examine the relation between two dimensions of auditor quality, namely, auditor industry specialization and auditor reputation…

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5604

Abstract

Purpose

The purpose of this paper is to empirically examine the relation between two dimensions of auditor quality, namely, auditor industry specialization and auditor reputation and the audit report lag.

Design/methodology/approach

The data collection focuses on companies listed on the Indonesia Stock Exchange for the financial year of 2010 and 2011. To ensure data homogeneity and reduce industry bias, this study focuses solely on manufacturing companies identified by the Indonesian Capital Market Directory.

Findings

This study finds a negative and significant association between industry-specialist auditors and audit report timeliness. Companies audited by industry-specialist auditors have shorter audit delays. The authors also find evidence that Big 4 auditors perform significantly faster audit work than their non-Big 4 counterparts. In addition, this study reports a statistical and significant relationship between auditing complexity, companies’ profitability, auditors’ business risk, and industry classification and audit report lag. The results show that firms with a large number of subsidiaries and firms experiencing poorer financial performance are found to be associated with longer reporting delays. Moreover, audit report timeliness is found to be faster for companies in the low-profile industry sector and owned by family members.

Research limitations/implications

Similar to other empirical investigations, this study is not without certain caveats. First, the period of audit report lag in this study reflects the audit work from the year-end to the audit report date. The authors do not consider audit work conducted outside this period in the analysis. Second, there are numerous control variables and although the authors have attempted to capture those variables to maintain the integrity of the research there are likely other excluded variables that may be important in explaining audit report timeliness. Finally, there are other factors, for example, an administrative approval process with the audit firm home office, which can affect audit report lags but have not been included in the model analysis. Future studies can seek to focus on refinements to the proxy measures for dependent and experimental variables.

Practical implications

Insights drawn from this study may be of assistance to policy makers as they consider the costs and benefits associated with varying levels of audit market concentration as well as providing a snapshot of the level of non-compliance on audit timeliness in Indonesia.

Originality/value

This study provides further empirical evidence on the relation between auditor quality and audit report lag using data from a different domestic setting. This study also enriches the auditor quality literature by employing industry-specialist and Big 4 auditors as a predictor for the timeliness of audit reports.

Details

Asian Review of Accounting, vol. 25 no. 2
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 20 January 2020

Mohamed Ahmed Kaaroud, Noraini Mohd Ariffin and Maslina Ahmad

The purpose of this study is to examine the extent of audit report lag and its association with governance mechanisms in the Islamic banking institutions in Malaysia.

Abstract

Purpose

The purpose of this study is to examine the extent of audit report lag and its association with governance mechanisms in the Islamic banking institutions in Malaysia.

Design/methodology/approach

The extent of audit report lag is defined by the number of days from a company’s financial year-end to the signature date on its audit report. The sample of the study comprises 112 observations of Islamic banking institutions’ financial reports for the period 2008-2014. A balanced panel data analysis is performed to analyse the association between the extent of audit report lag and governance mechanisms.

Findings

The findings show that the extent of audit report lag for the sample selected ranges from a minimum period of 7 days to a maximum period of 161 days, and the extent of audit report lag is approximately two months on average. A fixed effects analysis indicates that audit committee expertise and audit committee meeting have significant association with the extent of audit report lag. On the other hand, board independence, audit committee size and Shari’ah board expertise have insignificant association with the extent of audit report lag. In addition, one control variable (Islamic bank size) is found to be significantly associated with longer audit report lag.

Practical implications

The findings provide useful feedback for Malaysian policymakers on the past and current practices of financial reports and of governance mechanisms. The findings of the study would help the policymakers in monitoring the Islamic banking institutions’ compliance with financial reports submission requirements. The policymakers perhaps could relook into governance mechanisms that reduce the extent of audit report lag in the Islamic banking institutions and implement regulations to strengthen them.

Originality/value

Unlike the majority of prior studies that investigated the association between the extent of audit report lag and governance mechanisms, this study provides two contributions. First, to the authors’ knowledge, this study is the first piece of research that examined the association between governance mechanisms and the extent of audit report lag in Islamic banking institutions. Second, the study examined the association of new governance variable, namely, Shari’ah committee expertise which has not been previously examined in the literature of audit report lag.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 1
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 25 July 2018

Ben Kwame Agyei-Mensah

The purpose of this paper is to investigate selected corporate governance attributes and financial reporting lag and their impact on financial performance of listed firms in Ghana.

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1271

Abstract

Purpose

The purpose of this paper is to investigate selected corporate governance attributes and financial reporting lag and their impact on financial performance of listed firms in Ghana.

Design/methodology/approach

The study uses 90 firm-year data for the period 2012–2014 for firms listed on the GSE. Each annual report was individually examined and coded to obtain the financial reporting lag. Descriptive analysis was performed to provide the background statistics of the variables examined. This was followed by regression analysis, which forms the main data analysis.

Findings

The descriptive statistics indicate that over the three years, the mean value of timeliness of financial reporting (ARL) is 86 days (SD 21 days), minimum is 55 days and maximum is 173 days. The regression analysis results indicate that financial reporting lag has a negative statistically significant relationship with firm performance. This negative sign indicates that when financial performances of companies are high (good news), companies have the tendency to disclose this situation early to the public.

Practical implications

Firms that are not timely in the financial reporting practices will find it difficult to attract capital as the delay will affect their reputation.

Originality/value

This study is one of the few to measure financial reporting lag and its impact on firm financial performance in Sub-Saharan Africa.

Details

African Journal of Economic and Management Studies, vol. 9 no. 3
Type: Research Article
ISSN: 2040-0705

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Article
Publication date: 29 January 2018

Mahdi Salehi, Mahmoud Lari Dasht Bayaz and Mohamadreza Naemi

The purpose of this paper is to examine whether the characteristics of a CEO, that is, tenure and financial expertise, could affect the timeliness of an audit report.

Abstract

Purpose

The purpose of this paper is to examine whether the characteristics of a CEO, that is, tenure and financial expertise, could affect the timeliness of an audit report.

Design/methodology/approach

Research data gathered from listed companies on the Tehran Stock Exchange during the four-year period 2013-2016.

Findings

The results obtained from model fittings indicated that there is only a negative and significant relationship between CEO financial expertise and natural logarithm of audit report lag and no significant relationship observed between the former and two other indices of timely audit report. Moreover, no significant relationship was found between the CEO tenure and other three indices of timely audit report.

Originality/value

This paper is the first study, which developed the literature of timely audit report using CEO tenure effect and financial expertise tests for timely audit reports in Iran.

Details

Management Decision, vol. 56 no. 2
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 31 May 2019

Murat Ocak and Gökberk Can

Recent studies regarding auditor experience generally focus on auditor overall experience in accounting, auditing, finance and related fields (Hardies et al., 2014)…

Abstract

Purpose

Recent studies regarding auditor experience generally focus on auditor overall experience in accounting, auditing, finance and related fields (Hardies et al., 2014), auditor sector and domain experience (Bedard and Biggs, 1991; Hammersley, 2006), auditor experience as CPA (Ye et al., 2014; Sonu et al., 2016) or big N experience (Chi and Huang, 2005; Gul et al., 2013; Zimmerman, 2016) or auditors’ international working experience (Chen et al., 2017). But there is little attention paid to where auditors obtained their experience from? And how do auditors with government experience affect audit quality (AQ)? This paper aims to present the effect of auditors with government experience on AQ.

Design/methodology/approach

The authors used Turkish publicly traded firms in Borsa Istanbul between the year 2008 and 2015 to test the hypothesis. The sample comprises 1,067 observations and eight years. Two main proxies of government experience are used in this paper. The first proxy is auditor’s government experience in the past. The second proxy is the continuous variable which is “the logarithmic value of the number of years of government experience”. Further, auditor overall experience in auditing, accounting, finance and other related fields are also used as a control variable. Audit reporting aggressiveness, audit reporting lag and discretionary accruals are used as proxies of AQ. Besides this, the authors adopted the model to estimate the probability of selecting a government-experienced auditor, and they presented the regression results with the addition of inverse Mills ratio.

Findings

The main findings are consistent with conjecture. Government-experienced auditors do not enhance AQ. They are aggressive, and they complete audit work slowly and they cannot detect discretionary accruals effectively. Spending more time in a government agency makes them more aggressive and slow, and they do not detect earnings management practices. The Heckman estimation results regarding the variable of interest are also consistent with the main estimation results. In addition, the authors found in predicting government-experienced auditor choice that family firms, domestic firms and firms that reported losses (larger firms, older firms) are more (less) likely to choose government-experienced auditors.

Research limitations/implications

This study has some limitations. The authors used a small sample to test the impact of government-experienced auditors on AQ because of data access problems. Much data used in this study were collected manually. Earnings quality was calculated using only discretionary accruals. Real activities manipulation was not used as the proxy of AQ in this paper. The findings from emerging markets might not generalize to the developed countries because the Turkish audit market is developing compared to Continental Europe or USA.

Practical implications

The findings are considered for independent audit firms. Audit firms may employ new graduates and train them to offer more qualified audit work for their clients. The results do not mean that government-experienced auditors should not work in an audit firm, or that they should not establish an audit firm. It is clear that government-experienced auditors provide low AQ in terms of audit reporting aggressiveness, audit report lag and discretionary accruals. But as they operate more in the independent audit sector, they will become successful and provide qualified audit work. One other thing we can say is that it is perhaps better for government-experienced auditors to work in the tax department of independent audit firms.

Originality/value

This paper tries to fill the gap in the literature regarding the effect of auditor experience on AQ and concentrates on a different type of experience: Auditors with government experience.

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Article
Publication date: 12 July 2021

Hui Liu, Charles Cullinan and Junrui Zhang

Companies may be defendants in lawsuits that are unresolved at year-end. This paper aims to consider whether the financial statements of companies facing litigation claims…

Abstract

Purpose

Companies may be defendants in lawsuits that are unresolved at year-end. This paper aims to consider whether the financial statements of companies facing litigation claims (pending litigation) are more time-consuming to audit due to the complexity and subjectivity of contingent liabilities associated with pending litigation. The authors consider whether auditors tailor their approach to pending litigation based on two distinct factors in the Chinese business environment: the client’s government ownership status and the legal development of the region in which the company is based.

Design/methodology/approach

Data on litigation against companies and their audit report lags were obtained for 18,029 firm-year observations of Chinese companies from 2008 to 2017. The sample was subsequently divided based on whether the company was a state-owned enterprise (SOE) and based on whether the company was based in a region of China with a more-developed and more market-oriented legal system.

Findings

The overall results indicate that audits of companies with pending litigation take 2.9 days longer than those of companies without pending litigation. For companies with multiple pending claims, each additional claim is associated with 1.9 more days of audit report lag. These effects are weaker for SOEs and for companies in regions of China with less developed legal systems. The results are consistent with the idea that auditors tailor their response to pending litigation based on the risk profile of the client, including consideration of SOE status and regional legal development.

Originality/value

This paper is the first to consider the potential effect of pending litigation (including claims not disclosed or recognized in financial statements) on audit report lags and how environmental business factors can influence this relationship.

Details

Managerial Auditing Journal, vol. 36 no. 5
Type: Research Article
ISSN: 0268-6902

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Article
Publication date: 2 May 2017

Magdy Farag

The purpose of this study is to examine audit report lags and audit report deadline margins. It specifically examines whether audits of large accelerated filers are…

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1126

Abstract

Purpose

The purpose of this study is to examine audit report lags and audit report deadline margins. It specifically examines whether audits of large accelerated filers are completed within a shorter period as compared with regular accelerated filers due to the introduction of new deadline filing requirements by the SEC. The paper also examines whether large accelerated filers have shorter audit report deadline margins.

Design/methodology/approach

Using a sample of 7,129 firm-year observations over the period 2007-2013, an OLS regression model is applied by regressing audit report lags and audit report deadline margins on an indicator variable for large accelerated filers and a set of control variables.

Findings

Results indicate that audits of large accelerated filers have shorter audit report lags as compared with regular accelerated filers. Also, large accelerated filers have shorter audit report deadline margins as compared with regular accelerated filers. These results suggest that even though large accelerated filers’ audits are more complex by nature, auditors of these firms are under more pressure to complete their audits and issue their clients’ audit reports on time.

Research limitations/implications

While the control variables included in the models are all based on established theories and validated in prior research, there may still be some control variables that were excluded from the study’s models. Also, these results cannot be generalized beyond firms that are categorized as large accelerated filers or accelerated filers.

Practical/implications

Public accounting firms should be prepared to devote more resources to large accelerated filers’ clients. Also, regulators might need to reconsider revising the filing deadline requirements for the new category of large accelerated filers by weighing the pros against the cons of these new deadlines, as it appears that auditors of large accelerated filers need more time to complete their audits.

Originality/value

This study uses a new measuring tool in addition to audit report lags, which is the ‘audit report deadline margin’.

Details

Accounting Research Journal, vol. 30 no. 01
Type: Research Article
ISSN: 1030-9616

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