Beruflich Dokumente
Kultur Dokumente
Abstract: This research is conducted to determine the correlation of the audit committee characteristics
and the timeliness of financial reportings of manufacturing companies that are listed in Indonesia Stock
Exhange (IDX) with the external audit delay (AD) as a proxy. Focused on three audit committee
characteristics: the financial expertise, the number of meetings and the size of audit committee. Using
panel data from manufacturing companies that are listed in Indonesia Stock Exchange (IDX) during the
period of 2014 until 2017 and the random effects of utilised panel data method. Total sample that being
used in this research are 416 observations. The research result shows that the audit committee
characteristics have no effect on the external audit delay (AD). Furthermore, this research indicates that
the profitability, the company’s size, and the company’s profit (or loss) have negative significant effect
on the external audit delay (AD), while the audit firm’s size has no effect on the external audit delay
(AD). Findings of this research also indicates that the leverage have no effect on the external audit delay
(AD).
Keyword: Audit Delay, Financial Expertise, Number of Meetings, Size of Audit Committee
INTRODUCTION
Timeliness is one of many qualitative characteristics from accounting information, that has an
impact on the availability of financial information. These information are important for users because
the timeliness information can lost it’s capability to affect users’ decision making (IASB, 2010). Likewise,
audit timeliness is the most influential factor in timeliness of financial statement (Owusu-Ansah, 2000).
If a financial statement lose it’s value at the time when needed, it can reduce the relevancy of the
information on the decision-making process (Alkhatib and Marji, 2012). OJK as an institution that
monitor capital market and financial institution issued POJK No.29/POJK.04/2016 about reporting
financial statements of public companies, define listed companies are required to submit the audited
annual report to OJK and Indonesia Stock Exchange (IDX) at the latest at the end of the fourth month
(120 days) after the date of the financial statement. The regulations that issued by OJK applied effectively
after 2016, before that, the regulations that being used by companies to protect shareholders’ interest
concerning the timeframe for information submission issued by Badan Pengawas Pasar Modal
(BAPEPAM), i.e. The Indonesian Capital Market Supervisory Agency.
According to BAPEPAM Rule No.X.K.2, attachment to the decision of the Chairman of BAPEPAM
regarding the reporting financial statements of public companies, stated that listed companies in
Indonesia are required to submit the audited annual report to BAPEPAM and Indonesia Stock Exchange
(IDX) at the latest at the end of the third month (90 days) after the date of the financial statement. The
time span between companies’ date financial statement until the audited financial statement’s reported
is called the Audit Delay (Lawrence & Janice, 1998), prior studies also called it as Audit Report Lag (ARL),
that found the assosiation between the client’s size, the complexity of an audit and the type of earnings
information (Bamber et al, 1993; Ng and Tai, 1994). As audit delay is important, POJK No.55 stated that
if a company do not obedience with the reporting regulations they can get sanctions, such as written
warning, fines as obligation to pay a sum of money, cancellation of business activities, suspension of
business, revocation of business license, cancellation of approval and cancellation of registration.
Agency theory proposed by Jensen and Meckling (1976) and Fama and Jensen (1983) are the one
that mainly being used by researchers, because there are asymetry information between management
and shareholders caused by differentiation of interest and interactions that creating agency problems.
As we know that Indonesia is one of the country that using two-tiers system in their companies’
management, there are Board of Commissioners (BOC) and Board of Directors (BOD) that each one of
them has their own function in managing companies’ management. This issue encourage the Audit
Committee are being formed by BOC and they has responsibilities to support carry out the duties and
functions of BOC (PJOK No.55/PJOK.04/2016). PJOK No.55 also mention that in carry out audit
committee’s function, they has duties and responsibilities to review the company’s financial information,
to review the obedience’s company to regulations related to public company’s activities, to review
internal auditor’s work, to review risk management’s activities, or the audit committee can act as a
communication intermediary between major parties in the financial reporting process. Thus, audit
committee has a direct responsibilities to the audit reporting process (Beasley et al., 2009).
The most important duty of audit committee is protecting investor or shareholders interest by
ensuring the quality of financial information (Sultana et al, 2015). Concerned with ensuring the financial
informations’ quality, audit committee is likely to pay more attention to the timeliness of reported
information, audited annual report. Audit committee tends to be motivated to minimise audit delay
(AD) because it can affect their performance’s effectiveness and reputation (Sultana et al, 2015).
Furthermore, prior study from DeZoort et al. (2002) states that there are some factors that influencing
audit committee’s effectiveness and can be categorised into four major groups: (1) arrangement (i.e.,
audit committee duality, independence and size); (2) resources (i.e., committee experience and financial
expertise); (3) authority (i.e., power in the committee); and (4) diligence (i.e., number of meetings). As
the objective of this study is to find the association between audit committee characteristics and audit
delay, to provide empirical evidence that audit committee characteristics reduces the time of audit work
and enhances the timeliness of financial information. This study focused on three audit committee
characteristics: audit committee financial expertise, audit committee’s number of meetings and audit
committee size from manufacturing companies that listed in Indonesia Stock Exchange (IDX) during the
periode 2014 until 2017.
Prior studies found that audit committee with financial expertise members do associated with audit
delay, the existense of financial expertise enhances the timeliness of reporting by shorthening audit
reporting delay and higher proportions of financial expertise members are significantly negatively
associated with audit delay (Sultana, N., 2014; Oussii, A., 2018; & Raweh, N., 2019). Another study of
timeliness of financial reporting in the United Arab Emirates (UAE) found that the association of audit
committee financial expertise on audit reporting delay is negative but do not significant (Al-Muzaqier
M.A.H., Ahmad, M., and Hamid, F.A., 2018). On the contrary, there is prior study by Salleh, Z. et.al. (2017)
in Malaysia that found the audit committee with financial expertise members do not associated with
audit report delay. Based on the discussion above, the following hypothesis is developed.
H1 : There is a negative association between audit committee financial expertise and audit
reporting delay.
H2 : There is a negative association between audit committee’s number of meetings and audit
reporting delay.
H3 : There is a negative association between audit committee size and audit reporting delay.
In order to test our hypotheses, we focus on the population of manufacturing companies that are listed
in Indonesia Stock Exchange (IDX). In this study we use balance panel data, the period that we us in this
study is 2014 – 2017. The sample of this study contain 416 sample firm year.
Measurement of Variables
After we identify the expertise of every member the audit committee, we calculate the three variable
expertise that we created. The Accounting expertise (ACFEa) is defined as dummy variable, 1 if the AC
of firm i includes at least one accounting expert but no finance in each year during the sample period,
and 0 otherwise. Finance expertise (ACFEb) is defined as dummy variable, 1 if the AC of firm i includes
at least one finance expert but no accounting experts in each year during the sample period, and 0
otherwise. Accounting and finance expert (ACFEc) also defined as dummy variable 1 if the AC of firm i
include at least one accounting and at least one finance expert in each year during the sample period,
and 0 otherwise.
The Model
In order to assess the validity of our hypotheses, we estimate a panel data model with alanced data.
Thus, we use a model which regresses audit delay on a set of audit committee characteristics and control
variables. The regression model is estimated by the following equation:
Where:
Result
Table 3 shows the descriptive statistics from audit delay. We do grouping the manufacturing companies
by it’s industry sub-sectors. Based on the table 3, mean from audit delay for the sub-sector of common
and chemical industry is 75 days, the sub-sector of miscellanious industry is 80 days and the sub-sector
of consumer goods is 76 days. This result shows that the time of audit delay from these three sectors
do not really different. The maximum days of audit delay from these three sectors are 147 days, 120
days and 115 days respectively, reflect that for each sub-sectors still do not meet the timeliness of their
audited reporting financial statement.
Sub-sector of consumer 89 0 11 76 2
goods
Based on the time span of audit delay in the sub-sector industry grouping of the manufacturing
companies in the table 4 above, we can see that sub-sector of common and chemical industry has 1
company that reported their audited annual report less than 30 days, 38 companies reported at the
period of 31 days until 60 days, 165 companies reported at the period of 61 days until 90 days and the
last 7 companies reported their audited annual report more than 90 days from the date of financial
statement or exceed the time limit that already determined. For the sub-sector of miscellanious industry
there are no companies that reported their audited annual report less than 30 days. But there are 10
companies that reported their audited annual report at the period of 31 days until 60 days, 103
companies that reported at the period of 61 days until 90 days and only 3 companies that reported their
audited annual report more that 90 days. While for the sub-sector of consumer goods we also can see
that there are no companies that reported their aucited annual report less than 30 days, though, there
are 11 companies that reported their audited annual report at the period of 31 days until 60 days, 76
companies reported at the period of 61 days until 90 days and only 2 companies that reported their
report more than the time limit 90 days. These descriptive statistics indicate that the majority of
manufacturing companies reported their audited annual report at the period of 61 days until 90 days
corresponding with the regulation of OJK No.29/POJK04/2016 about reporting financial statements of
public companies that stated, company’s obligation to submit the financial statement no later than the
end of the fourth month (120 days) after the financial year ends.
Table 5: Desciptive Statistics of Variable Controls
AD LN_AD ACMEET ACSIZE ROE DAR SIZE
Mean 77.111 4.329 6.736 3.048 0.076 0.538 14.732
Median 81 4.394 5 3 0.047 0.481 14.582
Maximum 147 4.990 46 5 1.757 5.073 19.505
Minimum 22 3.091 2 2 -1.904 0.062 8.942
Std. Dev. 13.312 0.190 4.962 0.337 0.268 0.519 1.570
Observations 416 416 416 416 416 416 416
Based on the table 5 above, we can see that mean’s value of audit delay for manufacturing companies
are 77 days. The minimum and maximum are 22 days and 147 days respectively. Companies with
minimun audit delay’s value at 22 days only has 2 times number of meetings in a year, 2 members’ audit
committee, negative ROE’s value, small DAR’s ratio, and smaller companies’ size compared other
company. Whilst, for the companies with audit delay’s value at 147 days has 46 times number of
meetings in a year, 5 members’ audit committee, positive ROE’s value, higher DAR’s ratio, and bigger
companies’ size compared to other company with more smaller audit delays. Indicates that the more
complex a company is, the greather the possibility of audit delay.
Modus
The following tabel shows the descriptive statistics for control variables that being used in this research.
Based on the sub-sector industry grouping, sub-sector of common and chemical industry has audit
committee members with accounting expertise background, as well as the companies from the other
two sub sectors, the sub-sector of miscellanious industry and the sub-sector of consumer goods. While,
neither the sub-sector of common and chemical industry nor the sub-sector of miscellanious industry
has audit committee members with financial expertise background and accounting & financial expertise
background, contrary for the sub-sector of consumer goods, they has the audit committee member
with those background. Companies from these three sub-sectors are the companies that succesfully
book dow or posted profit account. Furthermore, for control variable Big 4, there are only companies
from the sub-sector of consumer goods that being audited by auditor from Big 4.
Table 7: Correlation
ACFEa ACFEb ACFEc ACMEET ACSIZE ROE DAR PROFIT BIG4 SIZE
ACFEa 1
ACFEb -0.293 1
ACFEc -0.104 -0.040 1
ACMEET 0.190 -0.185 -0.131 1
ACSIZE 0.060 -0.018 -0.028 0.274 1
ROE -0.016 -0.032 -0.045 -0.021 0.069 1
DAR 0.058 0.039 0.012 0.044 -0.050 -0.033 1
PROFIT 0.052 -0.038 -0.110 0.012 0.130 0.378 -0.217 1
BIG4 -0.034 0.049 0.028 -0.064 0.189 0.224 -0.124 -0.011 1
SIZE 0.082 0.071 -0.133 0.135 0.257 0.191 -0.027 0.065 0.410 1
We also performed the correlation tests between all the variables to identify the possibility if there are
multicollinearity in our models. This test indicates that there are no variables in our reasearch model
that has a correlation with other variables exceeding the threshold of 0.80 (Gujarati and Porter, 2009).
Main results
We examine the impact of the audit committee characteristics on audit delay of manufacturing
companies that listed on Indonesian Stock Exchange (IDX) using balanced panel data of 103 firm-year
observations for the time span from 2014 to 2017. In this study random effects model are appropriate.
Table 8 above shows the multivariate analysis. In terms of individual audit committee characteristics, we
find that Accounting expertise (ACFEa), Financial expertise (ACFEb), and Accounting & Financial
expertise (ACFEc) does not appear to have a significant effect on Audit Delay (LN_AD). This result do
not support H1. The findings are consistent with Salleh, Z. et.al. (2017) in Malaysia that found the audit
committee with financial expertise members do not associated with audit report delay. Audit
Committee’s Number of Meetings (ACMEET), and Audit Committee Size (ACSIZE) does have a negative
effect to Audit Delay (LN_AD) but do not appear to be significant determinants. This result do support
both H2 and H3. The findings are consistent with Sultana et al. (2014), Oussii et al. (2018), Al-Muzaqier
et al. (2018) and Raweh et al. (2019) that found the audit committee’s number of meetings do not
associated or may not contribute in reducing audit report delay. The result of Audit Committee Size
(ACSIZE) consistent with Sultana et al. (2014) and Oussii et al. (2018) that appear to be do not has an
impact on the relationship between the audit committee size and the audit reporting delay.
Across the control variables, the regression results indicate that Return on Equity (ROE), Profit or Loss
(PROFIT), and Firm Size (SIZE) does have a negative significant effect on Audit Delay (LN_AD). The
regression results show that control variables Audit Firm Size (BIG4) and Debt to Asset Ratio (DAR) does
have a positif effect on Audit Delay (LN_AD) but appear to be insignificant determinants.
CONCLUSION
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