The Relationship between Audit Report Filing Lag and Accounting Information Quality
Asian Tax Journal Vol. 13 No. 3 (2012), pp. 249-279
Abstract
In recent years, the frequent, repeated cases have been shown where stock prices of some stock －listed companies have repetitiously dropped due to reliability in financial statements and investors' worries about being delisted, as a result of submitting audit report in breach of the posting public announcement and not disclosing timely financial information to investors. Such are presumed to be mostly due to the disagreements between the management and auditors, causing a confusion among investors. Accordingly, it is judged to inform usefulness for investors to study the information effect of audit report filing lag on financial statements, namely information difference between the dates of the audit report disclosure and the completed audit report. Regarding audit reporting, lots of prior researches have been performed to find out the factors affecting audit report lag, i.e. a time lag between audit report date and the closing day of the fiscal year. Another time lag exists between the dates of the audit report and the audit report disclosure because, in order to file the audit report after auditors' spot inspection, additional audit efforts are required for securing additional audit evidence, filing an audit report and deliberating internal mentality, etc. The auditors' additional audit time is understandably inevitable to some extent, but in case of exceeding the acceptable extension, the timeliness of official income disclosure might be damaged. This study investigated the relationship between the audit report lag and discretionary accruals and between audit report filing lag and discretionary accruals, targeting the stock－listed firms in KOSPI (Korea Composite Stock Price Index) and KOSDAQ(Korea Securities Dealers Automated Quotation) Market from 2003－the year of legally obligated submission & disclosure of the audit report－until 2010. As results of empirical analysis, the relationship between audit report filing lag and discretionary accruals showed a statistically significant positive in both univariate and multivariate regression analysis. In other words, the delay in public announcement of audit report after securing adequate proof for the formation of auditors' opinions can be interpreted as the reporting delay due to disagreements with the management；Concerning this, this study confirmed that an auditor failed to reduce management's discretionary earnings managements, despite an auditors' additional audit efforts for solving disagreements with the management. This study result shows that though the level of disagreements between auditors and the management which submits the audit report belatedly is in the significant level an auditors' effort failed to reduce the discretionary accruals owing to an intrinsic limit to the act of discretionary earnings management in solving this friction. From this perspective, this result reveals that the auditors in Korea are expanding their range of auditing or coping with more conservatively in filing audit reports by applying a conservative criterion to increase in the non－transparency of accounting profits and likelihood of earnings management, but it can be analyzed that such actual efforts fail to eliminate management's act of earnings management completely. Accordingly, from viewpoints of the users of financial statements,the audit report filing lag can be interpreted as an indicator of important information effects. In addition, such a result also shows more significant positive relations especially in the analysis of the listed corporations on KOSDAQ, which suggests investors need to be more cautious in considering such corporations' financial statements. Additionally, the additional analysis of the auditors' scale showed no difference between auditors' scale and audit quality. This analyzed result supports domestic researches which are showing inconsistent results on whether the audit quality depends on the auditors' scale, indicating that accounting information quality doesn't vary according to the auditors’ scale. This study shows significant in that this study investigated what the audit report filing lag between the dates of the audit report and the audit report disclosure is influencing on accounting information quality whereas the existing researches took a focused look at the influences on the audit report lag between audit reporting day and its settling day.
Keywords
- audit report filing lag
- audit report lag
- accounting information quality
- audit report
- discretionary accruals
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