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This paper investigates factors which determine the length of time external auditors require to complete the audit. This time period is termed the audit report lag (ARL), defined as the number of days between the client's fiscal year-end and the audit report date. The model developed here hypothesizes that ARL is a function of (1) the amount of audit work required (which is in turn a function of auditor business risk, audit complexity, and other work-related factors), (2) incentives to expend more resources in order to provide a more timely audit report, and (3) the degree to which the auditor employs a structured audit approach. This extension of prior research provides a more comprehensive analysis of ARL determinants, and also facilitates resolution of an apparent inconsistency in prior research on the association between a structured audit technology and ARL.
The determinants of the timeliness of audit reports are of interest for three reasons. First, ARL affects the timeliness of both audit and earnings information. The timeliness of the audit opinion disclosure is important given recent evidence that qualified opinions do convey information to the capital market (e.g., Dopuch et al. 1986; Fields and Wilkins 1991; Loudder et al. 1992). ARL can also affect the timing of the company's public earnings announcement (Ashton et al. 1987; Givoly and Palmon 1982), since evidence reported here suggests that the majority of client firms (over 70 percent) wait at least until the audit report date to announce earnings. Hakansson (1977) explains that timeliness of public disclosures (e.g., audit opinions and earnings information) is important because delays compromise the ideal of equal access to information among investors. Delayed disclosure allows a subset of investors (primarily those with unusual detective abilities or wealth) to acquire costly private predisclosure information. These "well-informed" investors can then exploit (trade on) their private information at the expense of "less informed" investors. This is why policymakers such as the APB, FASB, and SEC have voiced concern about the timeliness of public information disclosures.(1)
The second reason for interest in ARL is that a better understanding of its determinants may provide insights into audit efficiency. Efficiency means the use of fewer inputs to obtain a given output, and ARL (i.e., the time required to complete the audit)...