Audit report lag: the role of auditor type and increased competition in the audit market

Abstract

This study investigates the effect of auditor type (private vs. state) and increased competition in an audit market on audit report lag (ARL). This is the first study to provide evidence regarding the effect of audit market competition on ARL. Utilising structure–conduct–performance theory, we predict that competition pressures private auditors to be more efficient and to have less reporting lag than state auditors. We also predict that competition among auditors after a liberalisation period forces auditors to be more efficient and to record less ARL than before. We use a unique data set in Iran, whereby the audit market liberalisation (an audit market where services were previously provided primarily by a state entity) has resulted in both state and private auditors simultaneously providing audit services. The findings are consistent with the following hypothesis, that is ARL is shorter for private auditors than it is for state auditors, and ARL decreases as competition increases in the Iranian audit market. Consistent with the structure–conduct–performance theory, the findings suggest that increased competition in the audit market results in higher efficiency, as reflected by a shorter ARL.

The Impact of Auditor Industry Specialization, Type of Auditor and Audit Opinion on ARL: The Case of Egypt

“…However, the regression result in table 5 reveals the opposite and shows positive and significant impact of auditor type on ARL. This doesn't confirm prior literature results [24] and means that H4 is not supported but on the contrary, private audit firms issue their audit report later in comparison with the ASA.…”

“…The second group focused on corporate governance characteristics [5,7,10,13] such as internal control quality, size and effectiveness of the audit committee, size, independence and effectiveness of the BOD, ownership structure. The last group examined audit related attributes, such as audit tenure [14], audit firm size [4,9,[15][16][17][18] auditor industry specialization [14,16,19] type of audit opinion [20][21][22] auditor changes [23], non-audit fees [15], internal audit assistance [1], type of auditor [24] and number of remarks in auditors' reports [4].…”

“…Prior studies investigated the association between the type of auditor and ARL. In Iran, Mohammad Rezai and Mohd-Saleh examined the impact of auditor type (private vs state auditors) and audit competition as a result of liberalization of audit market on ARL [24]. The authors noted that for private audit firms, the audit market is very competitive, while state auditors are monopolistic in their market share.…”

CEO financial background and internal control weaknesses

“…Therefore, we include audit fees as an additional explanatory variable in Equation . The disclosure of audit fees is not mandatory in Iran (see Mohammadrezaei & Mohd‐Saleh, ); thus, we only have access to voluntarily disclosed audit fees. Hence, the relation between audit fees and ICWs is tested using a sample of 805 firm‐year observations.…”

Determinants of auditor choice: Review of the empirical literature

“…We exclude Krishnan's () paper, because the auditor choice model did not incorporate any theoretical framework detailed in Section . Examples of some other studies excluded from our review on this ground include MohammadRezaei and Mohd‐Saleh () on audit report lag and Muller and Riedl () on the external monitoring of property appraisal estimates.…”