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Relationship Between Selected Corporate


Attributes and Audit Delay in Developing
Countries: Empirical Evidence from India


Dr. Monirul Alam Hossain*
Associate Professor,
Department of Accounting
Rajshahi University
Rajshahi-6205
Bangladesh
Phone: (0721)750315 (Res.)
Fax: (00880721) 750 064 (Office)
E-mail: monirulhossain@yahoo.com



and


Professor Peter J. Taylor
Head
Department of Economics and Commerce
Liverpool University
Liverpool L69 3BX
UK.
Phone: 0151-794-3035
Fax : 0151-794-3036
E-mail: peterjt@liverpool.ac.uk






(*Correspondence to be made to the First Author)
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Relationship Between Selected Corporate
Attributes and Audit Delay in Developing
Countries: Empirical Evidence from India

Abstract

This paper empirically examined the relationship between audit delay and several company
characteristics in a developing country, India. The objectives of this study are two-fold. First, to
measure the extent of audit lag in India. Second, to establish the impact of selected corporate
attributes on audit delays in India. Both univariate and multivariate analyses are performed to test
the hypotheses of the study. The audit delay for each of the 80 listed sample companies ranged
from minimum interval of 22 days to a maximum interval of 265 days. Indian listed companies
took approximately 3 months on average beyond their balance sheet dates before they finally
ready for the presentation of the audited accounts to the shareholders at the annual general
meeting. The result for the sample of 80 listed Indian companies showed that audit delay was
significantly related to the subsidiaries of miltinational companies, debt equity ratio and total
assets. Other four corporate attributes found not to be significantly associated with audit delay.

Key words: Timeliness, Audit Delay, India, Corporate Attribute, Audit Lag, Financial
Reporting, Annual Report.
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1.0 INTRODUCTION
The usefulness of published corporate reports depends on their accuracy and their timeliness.
Timeliness was first identified by the American Accounting Association (AAA, 1954 and 1957)
as one of the qualitative attributes of usefulness in accounting information. Subsequently, the
Accounting Principles Board (APB) in the USA, the Institute of Chartered Accountants of
Canada (ICAC) and the Institute of Chartered Accountants of England and Wales (ICAEW)
followed the AAA path recognising timeliness as one of the most important characteristics of
financial statements. Timeliness requires that information should be made available to financial
statement users as rapidly as possible (Carslaw and Kaplan, 1991) and it is a necessary condition
to be satisfied if financial statements are to be useful (Davies and Whittred, 1980; p. 48-49). The
usefulness of information disclosed in company annual reports will decline as the time lag
between year end and publication increases, and it has been argued by Abdulla (1996) that the
longer the period between year end and publication of the annual report, the higher the chances
that the information will be leaked to certain interested investors. There are evidence that there is
a relationship between the security prices and the timeliness disclosure (Givoy and Palmon, 1984
and Chambers and Penman, 1984). It has been argued that the shorter the time between the end
of the accounting year and publication date of accounting reports, the more benefit can be
derived from audited annual reports (Abdulla, 1996). Legal or other accounting regulations may
not permit publication of financial reports unless they have been certified by an external auditor.
Even in the absence of such restrictions, managers of reporting firms may be unwilling to
publish financial reports without audit certification due to agency cost considerations. Thus,
publication of annual reports by companies may be delayed by the need is that the accounts need
to be audited. Time lag in financial report publication and audit delay are intertwined and
frequently used interchangeably in the financial reporting literature. As a result, in many cases
timeliness timeliness have actually dealt with audit delays. The length of the audit lag has been
regarded as the single most important determinant of the timeliness of the earning
announcements (Givoy and Palmon; 1982, p.419).

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Audit delay is generally defined in these studies as the length of time from a companys financial
year-end to the date of the auditors report. The present study has adopted this definition of audit
delay. The objectives of this study are two-fold. First, to measure the extent of audit lag in a
developing country, India . Second, to establish the impact of selected corporate attributes on
audit delays in India. This study possesses at least two unique characteristics. First, Ashton et al.
(1989) has argued for the inclusion of additional variables to increase the predictive ability of
audit delay studies. This study has included two new company characteristics (audit fee and
multinationality of the companies) which never considered in prior research. Secondly, there is a
paucity of research about the timeliness of published audited accounts of the companies in
developing countries in general and a particular shortage of developing country studies of audit
delay. There are two only two studies which focused on the timeliness of corporate annual
reports in developing countries (Abdulla, 1996; and Ng and Tai, 1994). However, there is no
study which specifically examined the relationship between audit delay and selected corporate
attributes in the developing countries. This study is the first which attempts to establish an
association between a set of corporate attributes and audit delay in India.


The next section reviews existing research on reporting delay and audit delay. A model of audit
delay is presented in section 3, and the data used to test the model are described. The results
follow, and a concluding section discusses the limitations of the study and future direction for
further research.

LITERATURE REVIEW
Stock exchanges in different countries have certain requirements for listed companies to publish
their annual audited accounts within a specified period after the end of their accounting period.
In developed countries, the filling requirements for listed companies vary from 90 days (in the
USA and New Zealand), four months in the case of Australian listed companies and six months
(in the UK) after the balance sheet date (Davis and Whittred, 1980; and Dayer and McHugh,
1975).

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In developing countries, Bahraini listed companies are required to publish their annual reports
within 165 days from the financial year-end (Abdulla, 1996), while in the cases of India and
Bangladesh the maximum time limit to prepare corporate annual reports or financial statements
for presentation at the annual general meeting is six months and nine months respectively from
the accounting year end.

In India, the Companies Act 1956 specifies the time limit for the presentation of the annual
report at the annual general meeting as a maximum of six months after the accounting year end
of the company. According to the Indian Companies Act 1956, listed companies are not
required to prepare quarterly or interim reports and the stock exchanges in India do not
prescribe any such time limit other than the requirements of the Companies Act 1956.

During the last four decades the research literature on timeliness has become established in
financial accounting. This literature has been reviewed to provide the background to formulation
of the hypotheses which have been used in this study. As already noted, the first formal
recognition of the importance of timeliness came in 1954 AAA (1955) and (1957). They
observed that, Timeliness of reporting is an essential element of adequate disclosure (AAA,
1955; p.46). Subsequently, many researchers and professional bodies followed the AAA in
acknowledging the role of timeliness in corporate financial reporting theory and practice (see for
example, Accounting Principles Board, 1970; Courtis, 1976; Givoly and Palmon, 1982; Carlow
and Kaplan, 1991).

A number of empirical studies have been undertaken which seek to explain audit delay using
variables representing selected corporate attributes. Typically most of these studies have used
multivariate regression analysis and a brief review of some of the key studies follows.

Dyer and McHugh (1975) attempted to discover reasons for the delay in the publication
of annual financial reports of Australian companies. Their model sought to establish the impact
of selected corporate attributes on reporting delays of a sample of 120 companies randomly
selected from companies listed on the Sydney Stock Exchange. Apart from taking time lag data
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from the annual reports, they distributed questionnaires to the controllers and auditors of the
sample firms. The study revealed that sixty six percent of the mean total lag was consumed in
pre-audit delays and year-end audit examination. Of the three corporate attributes investigated,
only corporate size appeared to account for some of the variations in total lags, but the
relationship did not appear to be very strong. The relationship was, however, inverse as expected.
Their results tend to support the hypothesis that there is a significant relationship between the
time lag and the companys profitability.

Courtis (1976) reported the findings of his results on 204 listed New Zealand companies
for the year 1974. He examined the association of four corporate attributes including three
measures of corporate size (proxied by book value of total assets, the dollar value of sales
revenue and number of employees), age of company, number of shareholders, and the pagination
length of the annual report, with time lag in corporate report preparation and publication. The
influence of business sector was also examined. He found that the average interval of time
between balance sheet date and date of annual general meeting was 18 weeks, twelve of which is
purported to be absorbed by audit process. He found that slow reporters tended to be less
profitable as a group than fast reporters; and fuel and energy and finance companies, as specific
groups tend to be faster reporters than service industries and mining and exploration companies
as specific group. Mann-Whitney Z and U tests were used which revealed that none of the four
corporate variables were statistically significant in explaining reporting lags across the whole
sample.

Gilling (1977) argued that Courtiss (1976) investigation failed to establish any
statistically significant association between corporate attributes and reporting delays, because the
lag, in his view, was essentially an auditing lag. So, Gilling asserted that auditor attributes should
be examined instead of company attributes in order to find a meaningful explanation of reporting
lag. Gilling (1977) studied 1976 annual reports of 187 New Zealand listed companies, and found
that these companies are audited by 50 audit firms and approximately 69% of the listed
companies were audited by the seven largest auditing firms. The average interval between
balance sheet date and the date of the auditors report was 80 days in 1976 and 77 days in 1974.
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The mean reporting delay of companies audited by the leading audit firms was significantly less
than that of companies audited by the other 43 firms. More importantly, the mean time lag for
the 20 overseas companies in the sample was relatively short at 53 days and for 24 public
companies with assets over 50 millions dollars the mean delay was 70 days. He suggested that
this is because of conscious scheduling of audit work by large public companies.

Givoly and Palmon (1982) found an improvement in the timeliness of annual reports of
210 companies listed on the New York Stock Exchange (NYSE) over a period of 15 years from
1960 to 1974. They focused on the abbreviated audited annual reports published in the earnings
digest of The Wall Street Journal ahead of the full annual report. Corporate size and complexity
of operations were used to explain timeliness. Reporting delays appeared to be more closely
associated with industry patterns and traditions rather than with the company attributes studied. It
was, however, found that bad news tended to be delayed and that the degree of market reaction to
early and late announcements was differential. Late announcements appeared to convey less new
information than earlier reports. They reported that time lags decreased over time. Sales as a
proxy of size was found to be negatively related to the timeliness of annual report.

Whittred and Zimmer (1984) examined the association between time lag and a set of
corporate attributes in Australia. Their study showed that the firms not facing financial distress
take less time to publish annual reports than firms that are facing financial distress. Further, their
findings tend to support their hypothesis that company management will strive to delay releasing
bad news or to suppress information that might damage the company.

Ashton, Willingham and Elliott (1987) examined the relationship between audit delay and
14 corporate attributes in the USA. Their sample included 488 US annual reports (both public
and non public) belonging to six companies in six different industries. The explanatory variables
used in their model were total revenues, firm complexity (proxied by four variables), industry
classification, public/non-public status, month of financial year-end, quality of internal control,
the relative mix of audit work performed at interim and final dates, the length of time the
company had been a client of the auditor, profitability (proxied by two variables), and the type of
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audit opinion issued. The results tend to indicate that five variables were significantly related to
the audit delay, and these were total revenues, one of the complexity measures, the mix of
interim and final dates and the quality of internal control irrespective of the fact that they were
publicly or non-publicly traded..


Carslaw and Kaplan (1991) extended prior research of audit delays in New Zealand by
seeking to capture both auditor and corporate attributes in their regression model. The results
suggested that only two of nine explanatory variables were statistically significant. These were
corporate size, which was found to be inversely related and existence of loss which was found to
be directly related. Other variables studied but which proved statistically insignificant were
industry, existence of extraordinary items, audit opinion, audit firm size, year-end, ownership
(owner controlled vs. manager controlled), and debt proportion.

Ng and Tai (1994) empirically examined the association between audit delay and ten
company characteristics for listed companies in Hong Kong for the years 1990 and 1991. Their
results showed that log of sales and degree of diversification were significantly related to audit
delay in both years. However, change in EPS was found to be significant only in 1990 and
reporting of extratraordinary items proved to be significant only in 1991.

Abdullah (1996) reported empirical evidence on timeliness for a sample of annual reports
of 26 Bahraini companies. He examined association between the time lag and a set of five
determinants. His results show a significant negative relationship between timeliness of
publication and the firms profitability, size, and distributed dividend. However, the relationship
between timeliness and industry membership was insignificant and the direction of coefficient of
relationship between the debt-equity ratio and timeliness was not as predicted.

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Sample, Data Sets, Hypotheses Development and Model
of Audit Delay

3.1 The sample of Companies
The sample covers listed Indian companies for the year 2001-2002 on the Bombay Stock
Exchange (BSE). Lists of companies available for inclusion in the sample were obtained from
address books of the companies listed on the BSE. The populations covers an estimated 120
companies, however, 80 of the 120 company annual reports were available in the filings of the
BSE. The audit delay data on each of the 80 sample companies were taken from their annual
reports. In addition, the figures for shareholders equity and debt-equity ratio were calculated
from the information provided in the annual reports. The dependent variable Audit Delay (AUD),
was calculated from the dates supplied in the corporate annual as the interval of days between the
balance sheet date and the date of signature of the auditors report.

Corporate Attributes and Audit Delay Relationship
This Section examines the corporate attributes affecting audit delay of listed companies in a
developing country, India. The dependent variable used in this study is audit delay (AUD) which
has been calculated for each of the companies under study.

Several of the explanatory variables used in the study have been adopted from previous studies
undertaken by other researchers. As noted earlier, two new explanatory variables have been
introduced to investigate audit delay in a developing country context in general and in India in
particular. A model of audit delay consisting of seven company characteristics has been
developed from the work of Courtis (1976), Ashton et al. (1989), Ashton et al. (1987) and
Carslaw and Kaplan (1991) with some exceptions. The corporate attributes examined in this
study are size of the company (proxied by log of and assets), debt-equity ratio, profitability
(PROFIT), status as a subsidiary of multinational companies (MULTICOM), audit fee, industry
type (INDUSTRY) and audit firm size (INLINK). Of the seven explanatory variables, INLINK,
INDUSTRY, MULTICOM and PROFIT are dummy variables. The following paragraphs provide
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the rationale for the hypothesised relationships between each of the seven variables and audit
delay.

1. Size of company
There are several studies which have been found that there is a significant association between
the size of the reporting company and audit delay in both developed and developing countries
(Newton and Ashton, 1989; Davies and Whittred, 1980; Ashton et al., 1989; Carslaw and
Kaplan, 1991; Garsombke, 1981; Gilling, 1977 and Abdulla, 1996). For example, Ashton et al.
(1987; p.660) held that their analyses indicated that assets provided greater explanatory power.
Most early researchers have used total assets as the measure of company size. A negative
relationship between audit delay and the company size has been confirmed by most empirical
studies. However, researchers like Givoly and Palman (1982) found that there is no significant
relationship (either negative or positive) between the size of the company and the audit delay.

There are several justifications why company size could be negatively related to the extent of
audit delay. Larger companies may be hypothesised to complete the audit of their accounts earlier
than smaller companies for a variety of reasons. Firstly, it has been argued that the larger
companies may have stronger internal controls, which in turn should reduce the propensity for
financial statements errors to occur and enable auditor(s) to rely on controls more extensively
and to perform more interim work (Carslaw and Kaplan, 1991; p.23). Secondly, larger
companies have the resources to pay relatively higher audit fees to ensure the performance of the
audit soon after the year end of the financial year and vice versa. Thirdly, the larger the firm, the
more and larger the audiences who are interested in its affairs (Abdulla, 1996). Dyer and
McHugh (1975) argued that management of larger companies may have incentives to reduce both
audit delay and reported delay since larger companies may be monitored more closely by
investors, trade unions and regulatory agencies, and thus face greater external pressure to report
earlier. Therefore, researchers like Davies and Whittred (1980), Ashton et al. (1989), Carslaw
and Kaplan (1991) and Abdullah (1996) argued that to reduce uncertainty about performance that
might reduce share price, larger firms tend to complete their audit work as soon as possible in
order to release their annual reports. Finally, larger companies may be able to exert greater
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pressures on the auditor to start and complete the audit in time (Carslaw and Kaplan, 1991). In
this study, log of total assets and sales have been used as the measure of company size. The
following specific hypothesis has been tested regarding size of the firm:

H
1
: firms with greater assets are likely to experience completion of audit of their accounts
sooner than those firms with fewer total assets.

2. Debt-equity ratio
The debt-equity ratio has been studied empirically by some researchers to assess whether it bears
any relationship to audit delay. However, researchers like Carslaw and Kaplan (1991) and
Abdulla (1996) found no significant association between the debt-equity ratio and audit delay.
The nature of the relationship between audit lag and debt-equity is ambiguous. It has been argued
that increasing the amount of debt used, will put pressure on the firm to provide its creditors with
audited financial reports more quickly (Abdulla, 1996). Companies having more debt in their
financial structure can start and complete the audit quicker than firms with less or no debt.
Relatively highly geared companies have an incentive to complete audit work in order to have the
auditors report for facilitating both monitoring by creditors and implementation of any
corrective measures (Abdulla, 1996). In addition, such companies may release their audited
annual reports more quickly to reassure at the earliest opportunity equity holders who may reduce
risk premiums in required rates of return on equity. However, the quick release of audited
financial statements is not possible unless the audit work is accomplished. On the other hand,
there is a possibility that companies with higher debt-equity ratios may want to disguise the level
of risk and may delay publishing their annual reports. Thus, they may have an incentive to defer
audit work as longer as possible. Several measures of leverage have been used in previous
studies, including debt to total assets, total debt, debt proportion (Carslaw and Kaplan, 1991) as
well as the debt-equity ratio. The debt-equity ratio has been used as a measure of leverage in this
study. The following specific hypothesis has been tested regarding the debt-equity ratio:

H
2
: firms with higher debt-equity ratios are likely to experience completion of audit sooner than
firms with lower debt-equity ratios.

3. Profitability
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Profitability has been used by some researchers as an explanatory variable for audit delay (e.g.,
Dyer and McHugh, 1975; Carslaw and Kaplan, 1991 and Courtis, 1976). Among these
researchers Courtis (1976) and Dyer and McHugh (1975) found a positive association between
profitability and audit delay whereas Carslaw and Kaplan (1991) found a negative association
between the variables.

There are arguments in favour of the profitability variable being negatively associated with audit
delay. First, profitability can be considered one indication of whether good news or bad news
resulted from the years activity (Ashton, Willingham and Elliott, 1987). If the company
experiences losses management may wish to delay releasing the annual report in order to avoid
the discomfort of communicating bad news. It has been argued that a company with a loss may
request the auditor to schedule the start of the audit later than usual (Carslaw and Kaplan,
1991; p.24). On the other hand, companies having higher profitability may wish to complete
audit of their accounts as early as possible in order to release quickly their audited annual reports
to convey the good news. So, it is likely that if the profitability of a company is high,
management is likely to hurry to publish the corporate annual report in order to experience the
comfort of communicating it if it is good news. For profitable companies if the net profit
margin or the rate of return on investment is more than the industry average may constitute good
news as may profits greater than market expectation. Further, there is an argument that an
auditor may proceed more cautiously during the audit process in response to a company loss if
the auditor believes the companys loss increases the likelihood of financial failure or
management fraud (Carslaw and Kaplan, 1991; p.24).

In this study, profitability is treated as a dummy variable and is labelled PROFIT. Where
companies were reporting a profit for the period they are expected to minimise audit delay, and
have been assigned a 1, and rest of the companies were which were sustaining losses assigned a
0. The following specific hypothesis has been tested regarding profitability:
H
3
: firms with profit are likely to experience completion of the audit of their accounts sooner
than firms with losses.

4. Status as a Subsidiary of a Multinational Company
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It may be argued that the subsidiaries, in developing countries of parent multinational companies
from developed countries are likely to start and complete the audit of their accounts quicker than
their local counterparts. Several justifications may be offered for the inclusion of this variable.
The subsidiaries of multinational companies may have to prepare their accounts very soon after
the end of the accounting period for consolidation purpose. Hence, it is very important for such
subsidiaries of multinationals to prepare and complete the audit of their accounts as early as
possible.

Apart from this, the shares of the subsidiary companies may be viewed as blue chips or high-
grade corporate securities in the domestic markets. Hence, the subsidiaries of multinational
companies may be motivated to communicate information more quickly to the capital market
than their domestic counterparts. In addition, it has been found that the audits of multinational
companies are more likely to be performed by international auditing firms or Big Five firms
may be relatively quick and efficient in finishing their audit work. This variable is the first in
studies relating to audit delay literature which seeks to establish an association between status as
a subsidiary of a multinational company and audit delay. The following specific hypothesis was
tested regarding this variable:

H
4
: firms with mutinationality connections (subsidiaries of multinational companies) are likely to
experience completion of the audit of their accounts sooner than their domestic
counterparts.


5. Audit firm size
There are studies which have examined empirically the relationship between the size of audit
firm (or international link of the auditing firm) and audit delay (e.g., Carslaw and Kaplan, 1991
and Gilling, 1977). Whereas Gilling (1977) found a significant positive relationship between the
audit delay and size of audit firms, Garsombke (1981), Carslaw and Kaplan (1991) and Davis
and Whittred (1980) found no significant association.

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It can be argued that the larger audit firms in developing countries (hence, international audit
firms) have a stronger incentive to finish their audit work more quickly than smaller audit firms
in order to maintain their reputation. Otherwise, they may loose reappointment as the auditor of
their client companies in the coming year(s). The larger and better known audit firms tend to
have more human resources than smaller firms and it has been argued that the former may be
able to perform their audit work more quickly than smaller audit firms.

It has been argued by Gilling (1977) that audit delay for companies with an international audit
firm as auditor is expected to be less than for audits from other audit firms, because they are
larger firms, might be able to audit more efficiently, and have greater flexibility in scheduling to
complete audits in time (Carslaw and Kaplan, 1991). Further it has been argued by Ashton,
Willingham and Elliott (1987; p.602)

It may be reasonable to expect that larger audit firms would complete audits on a
more timely basis because of their experience Large firms may be able to
audit such companies more efficiently than small audit firms.

In this study, Indian auditors are classified into two groups- international auditing firms including
Big Six, and domestic audit firms. Most domestic audit firms in India can be characterised as
sole proprietorship firms (although there exists some partnership audit firms) and hence, they are
small in size. Hence, the international link of the audit may also proxy for size of audit firm. The
INLINK variable used in this study is a dummy variable representing 1 if the auditor is an
international audit firm and 0 if not. There is a negative relationship hypothesised between
INLINK and AUD. The following specific hypothesis has been tested regarding international link
of the audit firm:

H
5
: firms that engage audit firms with international links are likely to complete audit of the
accounts sooner than those firms that engage smaller domestic audit firms.
6. Audit fees
There are no studies which have found that there is a significant association between the size of
the audit fees of a reporting company and its audit delay in both developed and developing
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countries. There are several reasons why audit fee size could be negatively related to the extent of
audit delay. The audit fees for the large manufacturing corporations are higher as compared to
smaller corporations. The audit work for the large manufacturing corporations takes usually
longer time because of the absolute amount of inventory and receivables, and the proportion of
assets in inventory and receivables and number of subsidiaries within and outside the country.
The following specific hypothesis has been tested regarding the audit fees size:
H
6
: firms with lower audit fees are likely to have the audit of their accounts completed sooner
than those firms with higher audit fees.

7. Industry Type
Some earlier researchers have used industry type as an explanatory variable for audit delay. One
industry may have complex manufacturing process while others may not. The adoption of
different industry-related accounting measurement, valuation and disclosure techniques and
policies may cause delay in preparing accounts and audit of complex industries. Therefore, the
time to perform the audit work may be longer for the companies having complex manufacturing
process than other companies. For example, audit delay is expected to be shorter for the trading
companies or companies with simple manufacturing process because such companies typically
have little or no inventory. Inventories are difficult to audit and represent an area where material
errors frequently occur (Carslaw and Kaplan, 1991, p. 24). Earlier researchers divided industries
into two categories (financial and non-financial) for purposes of analysis. However, in this study,
companies having complex operations have been assigned 1 and 0 otherwise. The following
specific hypotheses has been tested regarding industry type:

H
7
: firms with less complex operations are likely to experience completion of the audit of their
accounts sooner than companies having complex manufacturing process.

9.3 Multiple Regression Model for Audit Delay

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Multiple linear regression technique has been used to test the hypotheses of the study. In the
model, time lag has been used as the dependent variable.
Y= o + |
1
PROFIT + |
2
MUTICOM + |
3
DERATIO + |
4
LOGASSETS + |
5
INLINK +
|
6
AUDITFEE + + |
7
INDUSTRY

c .................(1)

where, Y= audit delay (in days).
o = the constant, and
c = the error term.
The definitions of the seven corporate attributes and their expected effect on audit delay in the
regression model along with expected signs and relationships are presented in Table 1.
(insert Table 1 here)
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4 Results of the Study
The results are presented in three sections. In the first section summary of the descriptive
statistics of the dependent variable (AUD) and the seven independent variables has been
presented. This is followed by a multivariate analysis of correlation coefficients and finally, the
results of our multiple regression model of audit delay and seven corporate attributes are
presented.

4.1 Descriptive statistics
It has been noted that in this study the audit lag (i.e., the interval of time after the balance sheet
date and the date of auditors report when the auditors formally present their report to the
company) has been considered. In this study the audit lag has been considered (i.e., the total
interval of time between the balance sheet date and the date of auditors report when the auditors
formally present their report to the company). For example, if a company has June 30 as its
balance sheet date and if the date of auditors report is on December 26 (1993), the total lag will
be 178 days.


(Insert Table 2 here)

Table 2 indicates that the mean total interval of time between balance sheet date and the date of
auditors report averages 197 days (i.e., 6.77 months). This may be compared with results from
studies for other countries. US auditors reports were available approximately 40 days after their
clients balance sheet dates whilst New Zealand and Australian auditors took approximately 80
days. The audit delay for the 80 sample companies studied here ranged from a minimum interval
of 22 days to a maximum interval of 256 days. This finding suggests that Indian listed companies
take approximately three months on average beyond their balance sheet dates before presenting
their audited accounts to the shareholders at the annual general meeting. This evidence suggests
that timeliness may not be an important concern for Indian companies in financial reporting
policy.
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4.2 Correlation analysis
To examine the correlation between independent variables, Pearson product moment correlation
coefficients (r) were computed. A correlation matrix for all the values of r for the explanatory
variables along with the dependent variable were constructed for the Indian companies is
reported in Table 3.

(Insert Table 3 about here)


The Pearson product-moment coefficients of the correlation between the log of assets and audit
fees variable is higher than the coefficients of the correlation between audit delay and all other
corporate attributes. Table 3 suggests that the correlations between log of assets and audit fees
variables may be an issue while correlation across the other variables is not. The table shows
noteworthy collinearity (p s 0.01) between log of assets and audit fees (.623), between log of
assets and debt equity ratio (.395), and between subsidiaries of the multinational the companies
and international link of the audit firm (.321). However, Kaplan (1982) suggests that
multicollinearity may be a problem when the correlation between independent variables is 0.90 or
above. However, Emory (1982) considered more than 0.80 to be problematic. It is evident from
the table that the magnitude of the correlation between variables seems to indicate no severe
multicollinearity problems.


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4.3 Results of Regression Analyses
Because assets and sales variables were correlated, OLS regression using assets as the proxy for
the size variable (but excluding sales) was estimated for the model. Then, a second OLS
regression using sales as a proxy for the size variable (excluding assets) was estimated. For all
countries under study, the results of the regression that included assets (but not sales) showed a
higher R
2
than the regression which included sales (but not assets). Consequently, log of assets
variable (LOGASSETS) was used as proxy for size.

(Insert Table 4 (b) here)

It was hypothesised that for the sample companies, size (assets), profitability (rate of return on
assets and net profit margin), debt-equity ratio, multinationality, and international link of the
audit firm would be positively associated with the time lag variable. Table 4 (b) indicates that for
all except INLINK and PROFIT the actual sign of the regression relation was as expected.

(Insert Table 4 (a) here)

It was found that the relationship between audit delay and multinationality (MULTICOM), and
log of assets (LOGASSET) and debt-equity ratio (DERATIO) were significant at 5% level (see
Table 4 (a)). The association between audit delay and audit fees variable was found to be
significant at only 12% level. However, the relationships between audit delay and other three
explanatory variables (audit fees, profitability, and international link of the audit firm) were not
found to be significant. The R
2
under the model was .408, which indicates that our model is
capable of explaining 40.8% of the variability in the delay of audit in the sample companies
under study. The adjusted R
2
indicates that 34.7 percent of the variation in the dependent variable
the model used in this study is explained by variations in the independent variables. The R
2
can
be compared favourably with those reported by Ng and Tai (1994), Ashton et al. (1987), Carslaw
and Kaplan (1991) and Abdulla (1996). The F-ratio indicates that the model significantly
explains the variations in the timeliness of annual reports in India. The Durbin-Watson (DW)
statistics indicate that there is no severe autocorrelation.
20

5 Conclusion

It can be argued that the timeliness of annual reports is an area in which developed markets differ
from developing markets. It has been said that the timeliness of annual reports is an area in which
developed markets differ from developing stock markets. The multivariate tests of audit delay of
the Indian listed companies show that the subsidiaries of multinational companies, companies
with higher debt equity ratio and larger companies in terms of assets tend to start and complete
their audit work earlier. The multinational attribute, a new variable for the first time used in the
studies of audit delay has proved to be significantly negatively associated with audit delay. Other
new variable audit fees failed to establish any relationship with the audit delay. Other three
corporate attributes also found not to be significantly associated with audit delay.

The multivariate test of audit delay of the sample of Indian listed companies reported in this
paper suggests that the subsidiaries of multinational companies tend to complete their audit work
earlier. As is India, analysis of another new variable audit fees failed to establish any significant
relationship with audit delay. The other five corporate attributes were found not to be
significantly associated with audit delay.

From the results of this study the following conclusions can be drawn. Firstly, there appears to be
evidence of an unusually long audit delay made by the Indian listed companies included in this
study. The average interval of time between balance sheet date and the date of auditors report is
3.43 months for Indian. Although for the Indian sample companies, the minimum audit delay is
very low (22 days), the average audit lag for Indian companies is 100 days as against shorter
audit delays reported for other developed countries. With regard to timeliness as a qualitative
objective of financial statements this evidence can be regarded as indicating unsatisfactory
position regarding financial reporting in India. This may call into question the regulatory
awareness and procedures in the sample countries under study and may suggest concerns about
the role of public disclosure of audited accounting information versus that of insider trading of
21
accounting information. The lack of significance of a range of corporate attributes may suggest a
generalised delay in reporting audited accounting information across Indian companies.

The findings of this study may be generalised across the developing and developed countries
after taking into consideration certain limitations. This study considers annual reports for a single
year. Further research can be undertaken to measure audit delay longitudinally to determine
whether the trend of audit delay has changed over time. Such a study would provide additional
insights to the underlying causes for the audit delay in developing countries in general and in
India in particular. In addition, useful comparisons could be made with comparable countries
such as Sri Lanka.

22

Table 1
Definition of Corporate Attributes and Expected Effect on Audit Delay in the Regression
Variable
Labels
in the OLS
Corporate Attributes
Definition Expected
Relationship
with Audit
Delay

INLINK

International link of auditing
firms


The international link of audit firms represented
by a dummy variable; companies with the
international link assigned a 1 and otherwise
a0.

Negative
PROFIT Profitability of the firm Profitability represented by a dummy variable;
companies with positive net profit assigned a 1;
otherwise 0.

Negative
MULTICOM Subsidiary of a multinational
company

A multinational parent company having more
than 51% shares of the company

Negative
LOGASSETS Log of total assets Log of total assets of the company on the balance
sheet date

Negative
DERATIO Debt to equity ratio Long term debt divided by shareholders equity
at the end of the financial year

Positive
AUDITFEE Audit fees paid by the
company

The amount paid to the audit firm for the audit,

Positive
INDUSTRY Industry type Industry type has been represented by a dummy
variable; industries having complex
manufacturing process assigned a 1; otherwise
a 0.
Positive

23
Table 2
Descriptive statistics for Indian companies
Variable N Minimum Maximum Mean Standard
Deviation
AUDITFEE (in thousand Rs.) 80 2.5 47000.00 472.06 686.27
LOGASSETS (natural log) 80 7.5 10.80 9.04 .65
INDUSTRY 80 .00 1.00 .79 .41
DERATIO 80 .00 .98 .96 1.30
INLINK 80 .00 1.00 .30 .46
MNCS 80 .00 1.00 .28 .45
PROFIT 80 .00 1.00 .85 .35
AUD 80 22.00 256.00 99.64 45.10


24

Table 3
Spearman Rank Correlation for Indian companies

VARIABLES AUDITFEE DERATIO INDUSTRY INLINK LOGASSETS MULTICOM PROFIT
AUDITFEE 1.000
DERATIO .129 1.000
INDUSTRY .106 .237* 1.000
INLINK .165 -.284* .140 1.000
LOGASSETS .623** .395** .105 .093 1.000
MULTICOM .256* -.160 .183 .391** .179 1.000
PROFIT .129 -.249* -.133 .122 -.149 .102 1.000
** coefficient of correlation significant at 1% level or better (p s0.001)
*coefficient of correlation significant at 5% level or better (p s0.05)


26
Table 4 (a)
Summary of the regression output for Indian companies

Coefficient of multiple regression (Multiple R) .638
Coefficient of determination (R
2
) .408
Adjusted R
2
.347
Standard Error 33.98

Analysis of Variance
D.F. Sum of Squares Mean Squares
Regression 7 54809.07 7829.867
Residual 72 79661.73 1154.518
F ratio = 6.782
------------------ Variables in the Equation ------------------

Unstandardized Coefficients Standardized
Coefficients

Variable B Standard Error Beta T Sig T
(constant) 362.321 65.824 5.504 .000
AUDITFEES 1.128E-02 .007 .187 1.614 .111
DERATIO 15.084 3.374 .475 4.470 .000
INDUSTRY -3.809 10.320 -.036 -.369 .713
INLINK .133 9.341 .001 .014 .989
LOGASSET -29882 7.524 -.469 -3972 .000
MNCS -21.281 9.637 -.227 -2.208 .031
PROFIT .332 11.644 .003 .028 .978

27

Table 4 (b)
Relationship between audit lag and corporate attributes for Indian Sample companies
Variable labels Expected sign Actual sign Significance level
INLINK +
PROFIT +
MNCS **
LOGASSETS **
DERATIO + + **
AUDITFEE
INDUSTRY
** Significance level at 1%
28

REFERENCES
Abdulla, J. Y. A. (1996) The Timeliness of Bahraini Annual Reports, Advances in
International Accounting, Vol. 9, pp. 73-88.

Accounting Principle Board (1970) Statement No. 4: Basic Concepts and Accounting Principles
Underlying Financial Statements of Business Enterprises, New York:AICPA

American Accounting Association (1955) Standards of Disclosure for Published Financial
Reports, Supplementary Statement No. 8, The Accounting Review, July.

American Accounting Association (1957) Accounting and Reporting Standards for Financial
Statements and Preceding Statements and Spplements, Sarasota: AAA.

Ashton, R.H., Graul, P. R. and Newton, J. D. (1989) Audit delay and the timeliness of corporate
reporting, Contemporary Accounting Research, Vol. 5 No. 2, pp. 657-673.

Ashton, R. H., Wllingham, P. R. and Elliot, R. K. (1987), An empirical analysis of audit delay,
Journal of Accounting Research, (Autumn), pp. 275-292.

Carslaw, C. A. P. N. and Kaplan, S. E. (1991) An examination of audit delay: Further evidennce
from New Zealand, Accounting and Business Research, Winter, pp. 21-32.

Chambers, A. E. and Penman, S. H. (1984) Timeliness of reporting and stock price reaction to
earning announcements, Journal of Accounting Research, (Spring), pp. 45-56.

Courtis, J. K. (1976) Relationship between Timeliness in Corporate Reporting and Corporate
Attributes, Accounting and Business Research, Winter, pp. 45-56.

Davies, B. and Wittred G. P. (1980) The Association between Selected Corporate Attributes and
Timeliness in Corporate Reporting: Further Analysis, Abacus, June, pp. 48-60.

Dayer IV, J. C. and McHugh A. J. (1975) The Timeliness of the Australian Annual Report,
Journal of Accounting Research, Autumn, pp. 204-220.

Emory, E. 1982. Business Research Methods. Homewood, IL: Irwin.

Garssombke, H. P. (1981) The Timeliness of Corporate Disclosure, in J. K. Courtis (ed.)
Communication via Annual Reports, AFM Exploratory Series No. 11, University of New
England, Armidale, New South Wales, pp. 204-218.

Gilling M. D. (1977) Timeliness in Corporate Reporting: Some Further Comment, Accounting
and Business Research, Winter, pp. 35-50.
29

Givoly, G. and Palmon, D. (1982) Timeliness of Annual Earnings Announcements: Some
Empirical Evidence, The Accounting Review, Vol. LVIINo. 3 (July), pp. 486-508.

Kaplan, R. 1982. Advanced Management Accounting. Englewood Cliffs, NJ: Prentice-Hall.

Newton, J. D. and Ashton, R. H. (1989) The association between audit technology and audit
delay, Auditing: A Journal of Practice And Theory, Vol. 8, No. 1, pp. 22-37.

Ng, P. P. and Tai, B. Y. K. (1994) An empirical examination of the determinants of audit delay
in Hong Kong, British Accounting Review, Vol. 26 No. 1, pp. 43-59.

Whittred, G. and Zimmer, I. (1984) Timeliness of financial reporting and financial distress,
The Accounting Review, Vol. 55 (July), pp. 287-295.



30
REFERENCES
Abdulla, J. Y. A. 1996. The Timeliness of Bahraini Annual Reports, Advances in International
Accounting, 9: 73-88.

Accounting Principle Board (1970) Statement No. 4: Basic Concepts and Accounting Principles
Underlying Financial Statements of Business Enterprises, New York: AICPA.

American Accounting Association (1957) Accounting and Reporting Standards for Financial
Statements and Preceding Statements and Supplements. Sarasota: AAA.

American Accounting Association. 1955. Standards of Disclosure for Published Financial
Reports, Supplementary Statement No. 8, The Accounting Review, July.

Ashton, R. H., Wllingham, P. R. and Elliot, R. K. 1987. An empirical analysis of audit delay,
Journal of Accounting Research. (Autumn): 275-292.

Ashton, R.H., Graul, P. R. and Newton, J. D. 1989. Audit delay and the timeliness of corporate
reporting, Contemporary Accounting Research. 5(2): 657-673.

Carslaw, C. A. P. N. and Kaplan, S. E. 1991. An examination of audit delay: Further evidence
from New Zealand, Accounting and Business Research. (Winter): 21-32.

Chambers, A. E. and Penman, S. H. 1984 Timeliness of reporting and stock price reaction to
earning announcements, Journal of Accounting Research. (Spring): 45-56.

Courtis, J. K. 1976. Relationship between Timeliness in Corporate Reporting and Corporate
Attributes, Accounting and Business Research. (Winter): 45-56.

Davies, B. and Wittred G. P. (1980) The Association between Selected Corporate Attributes and
Timeliness in Corporate Reporting: Further Analysis, Abacus, (June): 48-60.

Dayer IV, J. C. and McHugh A. J. 1975. The Timeliness of the Australian Annual Report,
Journal of Accounting Research. (Autumn): 204-220.

Emory, E. 1982. Business Research Methods. Homewood, IL: Irwin.

Garssombke, H. P. 1981. The Timeliness of Corporate Disclosure, in J. K. Courtis (ed.)
Communication via Annual Reports, AFM Exploratory Series No. 11. University of New
England, Armidale, New South Wales: 204-218.

Gilling M. D. 1977. Timeliness in Corporate Reporting: Some Further Comment, Accounting
and Business Research. (Winter): 35-50.

31
Givoly, G. and Palmon, D. 1982. Timeliness of Annual Earnings Announcements: Some
Empirical Evidence, The Accounting Review. 12( 3): 486-508.

Kaplan, R. 1982. Advanced Management Accounting. Englewood Cliffs, NJ: Prentice-Hall.

Newton, J. D. and Ashton, R. H. 1989. The association between audit technology and audit
delay, Auditing: A Journal of Practice And Theory. 8 (1): 22-37.

Ng, P. P. and Tai, B. Y. K. 1994. An empirical examination of the determinants of audit delay
in Hong Kong, British Accounting Review. 26 (1): 43-59.

Whittred, G. and Zimmer, I. 1984. Timeliness of financial reporting and financial distress, The
Accounting Review, 55 (July): 287-295.

32

REFERENCES (Alternate)
Abdulla, J. Y. A. (1996) The Timeliness of Bahraini Annual Reports, Advances in
International Accounting, Vol. 9, pp. 73-88.

Accounting Principle Board (1970) Statement No. 4: Basic Concepts and Accounting Principles
Underlying Financial Statements of Business Enterprises, New York:AICPA

American Accounting Association (1955) Standards of Disclosure for Published Financial
Reports, Supplementary Statement No. 8, The Accounting Review, July.

American Accounting Association (1957) Accounting and Reporting Standards for Financial
Statements and Preceding Statements and Spplements, Sarasota: AAA.

Ashton, R.H., Graul, P. R. and Newton, J. D. (1989) Audit delay and the timeliness of corporate
reporting, Contemporary Accounting Research, Vol. 5 No. 2, pp. 657-673.

Ashton, R. H., Wllingham, P. R. and Elliot, R. K. (1987), An empirical analysis of audit delay,
Journal of Accounting Research, (Autumn), pp. 275-292.

Carslaw, C. A. P. N. and Kaplan, S. E. (1991) An examination of audit delay: Further evidennce
from New Zealand, Accounting and Business Research, Winter, pp. 21-32.

Chambers, A. E. and Penman, S. H. (1984) Timeliness of reporting and stock price reaction to
earning announcements, Journal of Accounting Research, (Spring), pp. 45-56.

Courtis, J. K. (1976) Relationship between Timeliness in Corporate Reporting and Corporate
Attributes, Accounting and Business Research, Winter, pp. 45-56.

Davies, B. and Wittred G. P. (1980) The Association between Selected Corporate Attributes and
Timeliness in Corporate Reporting: Further Analysis, Abacus, June, pp. 48-60.

Dayer IV, J. C. and McHugh A. J. (1975) The Timeliness of the Australian Annual Report,
Journal of Accounting Research, Autumn, pp. 204-220.

Emory, E. 1982. Business Research Methods. Homewood, IL: Irwin.

Garssombke, H. P. (1981) The Timeliness of Corporate Disclosure, in J. K. Courtis (ed.)
Communication via Annual Reports, AFM Exploratory Series No. 11, University of New
England, Armidale, New South Wales, pp. 204-218.

Gilling M. D. (1977) Timeliness in Corporate Reporting: Some Further Comment, Accounting
and Business Research, Winter, pp. 35-50.

33
Givoly, G. and Palmon, D. (1982) Timeliness of Annual Earnings Announcements: Some
Empirical Evidence, The Accounting Review, Vol. LVIINo. 3 (July), pp. 486-508.

Kaplan, R. 1982. Advanced Management Accounting. Englewood Cliffs, NJ: Prentice-Hall.

Newton, J. D. and Ashton, R. H. (1989) The association between audit technology and audit
delay, Auditing: A Journal of Practice And Theory, Vol. 8, No. 1, pp. 22-37.

Ng, P. P. and Tai, B. Y. K. (1994) An empirical examination of the determinants of audit delay
in Hong Kong, British Accounting Review, Vol. 26 No. 1, pp. 43-59.

Whittred, G. and Zimmer, I. (1984) Timeliness of financial reporting and financial distress,
The Accounting Review, Vol. 55 (July), pp. 287-295.

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