Abstract
Purpose - This study empirically examines 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 (IDX) 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 (ICMD). Findings - This study finds a negative and significant association between industry specialist auditors and audit report timeliness. Companies audited by auditor industry specialists have shorter audit delays. We also find evidence that Big 4 auditors perform significantly faster audit work than their non-Big 4 counterparts. In addition, this study reports a statistically 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. 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.
Discussion and Concluding Remarks
One important factor in measuring of transparency and quality of financial reporting is timeliness. This study investigates the determinants of timeliness of annual corporate reports of manufacturing firms listed on the Indonesia Stock Exchange (IDX) for the financial year of 2010 and 2011. We investigate the association between audit report timeliness and two characteristics of audit quality, namely auditor industry specialization and auditor reputation. This study finds evidence consistent with Habib and Bhuiyan (2011) who document that industry specialist auditors offer faster audit work compared to non-specialist auditors. This study also reveals that Big 4 audit firms perform statistically and significantly faster audit work than their non-Big 4 counterparts in Indonesia. Our findings are robust to three alternative measures of auditor industry specialization, that is, an industry specialist auditor as the largest supplier in each industry using market share based upon client total sales, an industry specialist as the auditor with the largest number of clients in the industry, and instead of using a dichotomous measure to identify a specialist auditor, we proxy for industry specialization using a continuous measure of market share based upon client total assets.
