REVIEWING THE LITERATURE ON AUDIT REPORT LAG
AND CORPORATE GOVERNANCE
Ummi Junaidda Binti Hashim
Department of Accounting
Faculty of Business Management and Accountancy
Universiti Sultan Zainal Abidin
Campus Gong Badak
21300 Kuala Terengganu, Terengganu, Malaysia
Rashidah Binti Abdul Rahman
Accounting Research Institute
Universiti Teknologi MARA
40450 Shah Alam, Selangor, Malaysia
Tel: +603 55444745
Fax: +603 55444921
REVIEWING THE LITERATURE ON AUDIT REPORT LAG AND
Abstract - This paper examines the literature on audit report lag (ARL) and corporate governance mechanisms over the years. It zooms the pioneer study in this field till the current year (2011), which is year the paper is written. It visualizes the determinants of audit report lag and also how effective of those charge with governance in assuring the timeliness. By presenting the overview of past literature on audit report lag, it would motivate the researchers t o conduct more research in this field. It recommends that a few variables that had been tested in previous studies can be re-examined in the future studies of audit report lag. Also, future study can examine on how ownership structure will influence the audit report lag. Besides that, potential study also may include other factors such as government policy or political issue that also might affect audit report lag.
Keywords: audit report lag, corporate governance, timeliness
With regards to quality annual reporting, efficiency is an important feature. Efficiency is often refers to timeliness that enhances the qualitative characteristics. This is provided in the Exposure Draft of an improved Conceptual Framework for Financial Reporting, (May 2008) issued by International Accounting Standard Board (IASB). Usefulness of information disclosed in a company’s annual report reduces when time lag increases. This is consistent with Abdulla (1996) that note ‘‘the longer the period between year end and publication of the annual report, the higher the chances that the information would be leaked to some interested investors’’ (FASB, 2000).
Timeliness of financial reporting is crucial to all users of financial reports. This is because most users particularly the shareholders and potential investors rely on the audited financial reports before deciding whether to retain as shareholders or to become investors of a company. Reliability of the reports would increase when it is audited by external auditor. In Exposure Draft of an Improved Conceptual Framework for Financial Reporting (2008 ) which is issued by International Accounting Standard Board, also includes that reliability as an essential qualitative characteristic of decision-useful financial reporting information. Users will feel affirm on the reports verified by the auditors and would able to make decision wisely (FASB, Concepts Statement 2).
Malaysian companies are frequently unable to provide the audited financial statement timely to the users. The reporting delay from the company’s accounting year end to the date of the audit report completed is a situation of audit delay or audit report lag (Ashton et al. 1987). Audit report lag would lead the shareholders and potential shareholders to postpone their transaction on shares (Ng and Tai, 1994). This in turn, would provide negative effect to the company. Owusu-Ansah (2000) provides that audit timeliness is one the factor that will influence on the timeliness of financial statements. It is therefore, imperative for the management of the companies to ensure such problem do not occur.
Bursa Malaysia views the delay of issuing audited financial reports as a serious issue. Steps have been taken by Bursa Malaysia in cautioning the directors of companies to submit 2
their audited financial reports on time. Bursa Malaysia listing...
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