Association of audit delay and audit firms'
international links: evidence from Bangladesh
Keywords
Auditors, Bangladesh,
International accounting,
Time study
Abstract
Examines whether audit delay of
Bangladeshi companies is
associated with audit firms' links
with international firms. The study
is based on a sample of 115 listed
companies of the Dhaka Stock
Exchange for the year ended
1998. A non-parametric tool has
been used to find whether any
significant difference exists
among audit firms. The results of
previous studies on audit delay
show that firms associated with
international audit firms appear to
provide motivation for shorter
audit delays. However, this study
reveals that firms associated with
international firms in Bangladesh
have longer audit delays with a
mean of 6.31 months, whereas the
overall mean is 5.86 months.
The authors would like to
thank all their colleagues of
the Department of
Accounting, University of
Dhaka for their continuous
support and valuable
suggestions.
Managerial Auditing Journal
16/3 [2001] 129±133
# MCB University Press
[ISSN 0268-6902]
Shahed Imam
MPhil Candidate, University of Cambridge, Cambridge, UK and Lecturer,
University of Dhaka, Dhaka, Bangladesh
Zahir Uddin Ahmed
Assistant Professor, Faculty of Business Studies, University of Dhaka, Dhaka,
Bangladesh
Sadia Hasan Khan
Research Assistant, RCS Private Ltd, Dhaka, Bangladesh
Introduction
The quality of disclosure in corporate annual
reports and accounts has been represented in
the literature by several constructs,
including adequacy (Buzby, 1974),
comprehensiveness (Barrett, 1976), and
informativeness (Alford et al., 1993). Another
important qualitative characteristic of
financial statements is timeliness. Both
analytical and empirical evidence suggests
that decisions based upon financial
statement information may be affected by the
timeliness of information release. Timeliness
affects a decision-maker's expected pay-off
(Beaver, 1968; Feltman, 1972), and security
prices (see, for example, Standish, 1975; Ryan,
1976; Givoly and Palmon, 1982; Chambers and
Penman, 1984; Kross and Schroeder, 1984).
The role the auditor plays in the timing of
earnings announcements has motivated
several recent investigations of factors
affecting ``audit delay'' (AD), i.e. the length of
time from a company's financial year end to
the date of the auditor's report.
The purpose of this paper is to provide
evidence on the association of AD and audit
firms' links with international firms in
Bangladesh. Studies on AD and its
determinants are voluminous and varied
(see, for example, Dyer and McHugh, 1975;
Courtis, 1976; Gilling, 1977; Davies and
Whittred, 1980; Garsombke, 1981; Aston et al.,
1987; Aston et al., 1989; Carslaw and Kaplan,
1991; Ng and Tai, 1994; Jaggi and Tsui, 1999).
All of these studies have been done on
developed countries with sophisticated
capital markets. However, studies on
determinants of AD in developing countries
like Bangladesh are rare. So there is an
ample need for the study.
Bangladesh is a small country located in
the north-eastern part of South Asia. It is an
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influential member country of the South
Asian Association of Regional Cooperation
(SAARC) and the South Asian Federation of
Accountants (SAFA). Culturally, Bangladesh
is to some extent different from Western
countries. Its socio-cultural customs are
distinct from the Western societies. Parry
and Khan (1984) identified a dominant social
group, an extended family system and
problems with corruption as the principal
cultural features of Bangladesh which might
have influence on its accounting practices.
Ahmed and Nicholls (1994) conclude that the
level of corporate disclosure in Bangladesh is
very poor and whatever information is
available is not reliable. Karim (1995) reveals
that the financial reporting environment in
Bangladesh is characterized by the
inheritance of the UK accounting system
via the British Companies Act, the
predominance of Government ownership in
the industrial sector, the lack of a strong and
broad-based capital market, and an
unsophisticated audit service market. Here,
financial reporting is characterized by a lack
of transparency, adequacy, reliability, and
timeliness.
Prior research on AD
Company size has been the variable studied
most frequently by many studies. A negative
relation between AD and total assets was
found in New Zealand by Courtis (1976) and
Gilling (1977), in Australia by Davies and
Whittred (1980), in Canada by Aston et al.
(1989), and in the USA by Garsombke (1981)
and Aston et al. (1987). In Australia, Dyer and
McHugh (1975) did not find any meaningful
relationship between reporting lag and level
of profitability, though Courtis (1976) was
able to discover an inverse relationship
described nonetheless as tentative and
dependent upon the profitability measures
used. Courtis (1976) also found that financial
firms had shorter delays than firms in other
industries. Gilling (1977) explores the effect of
[ 129 ]
Shahed Imam,
Zahir Uddin Ahmed and
Sadia Hasan Khan
Association of audit delay and
audit firms' international
links: evidence from
Bangladesh
Managerial Auditing Journal
16/3 [2001] 129±133
[ 130 ]
several additional factors on AD for a sample
of 1976 listed companies. He concludes that
AD for companies with an international
audit firm is expected to be less than for
audits from other firms. International firms,
because they are larger firms, might be able
to audit more efficiently, and have greater
flexibility in scheduling to complete audits
on a timely basis.
Davies and Whittred (1980) found longer
delays for companies listed with June 30
year-end and for companies receiving
qualified audit opinions. Garsombke (1981)
found longer delays for US companies with
January through March year-ends.
Givoly and Palmon (1982) examined the
multivariate relation between AD and three
audit-related variables: company size;
operational complexity; and internal control
quality. In their study, only the ratio of
inventory to total assets was a significant
explanator of AD and then only in one year.
Aston et al.'s (1987) analysis of company
ownership found that AD was significantly
shorter for public companies. Aston et al.
(1989) investigated the multivariate relations
between eight publicly available independent
variables and AD over six years (1977-1982)
for 465 public Canadian companies. Four of
these variables (client industry, type of audit
opinion, presence of extraordinary items,
loss for the year) were significant for at least
four of the six years. Three additional
variables (log of total assets, fiscal year end
and audit firms) had consistent signs across
the six years but reached significance in
three or fewer years.
Carslaw and Kaplan (1991) extend prior
research by examining the multivariate
relationship between a set of explanatory
variables and AD for a large sample of New
Zealand public companies. The study
includes two additional explanatory
variables: company control; and debt
proportions. The results indicate that both
company size and sign of income
significantly affect AD across the two years
examined.
Ng and Tai (1994) used multiple regression
analysis on 292 and 290 listed companies of
Hong Kong for the years 1991 and 1990,
respectively. They used three more variables
than prior studies and found similar results.
Jaggi and Tsui (1999) examined whether
the audit report lag of 393 Hong Kong
companies is associated with auditor
business risk and audit firm technology.
Regression results show that there is a
positive association between the audit report
lag and the financial risk index for Hong
Kong companies, suggesting that companies
with a weak financial condition are
associated with longer ADs. The result also
shows that companies audited by audit firms
using the structured audit approach have
longer ADs. Moreover, the results suggest
that family-owned/controlled companies
may have shorter ADs, though the results are
not statistically significant. Large companies
appear to provide motivation for shorter
ADs.
Research methods
The empirical work in this study is based on
the annual reports of 115[1] listed companies
of the Dhaka Stock Exchange. The most
important selection criteria for this sample
are:
1 Non-financial companies: financial
companies (e.g. banks and other financial
institutions and insurance companies) are
excluded from the sample because of the
major difference between such companies'
disclosure requirements and audit
procedures and those of other companies.
2 Financial year-end between January 1,
1998 and December 31, 1998.
Analysis and interpretation
At present, none of the international Big 5
audit firms have any offices in Bangladesh.
However, some local big audit firms have
links with international Big 5 and non-Big 5
audit firms. In Bangladesh, out of 38
practicing partnership firms, seven are
considered to be big local firms. The
classification of local big and non-big firms is
based on:
1 number of partners;
2 qualification of partners, i.e. ACA/FCA;
and
3 existence of link with internationally
reputed firms.
Those firms who meet the above criteria are
considered as local big firms and those who
do not are considered as local non-big firms.
There are some firms who have the same
number of partners and same qualifications
but due to not having any link with any
international big audit firms they are not
considered as local big firms. Table I shows
the local big firms who have links with
international audit firms.
The following null hypothesis has been
established and tested:
H0. Audit firms' association with
international firms produces shorter AD.
The hypothesized relationship between AD
and firms' association is based on the belief
that links with international firms appear to
provide motivation for shorter AD.
Shahed Imam,
Zahir Uddin Ahmed and
Sadia Hasan Khan
Association of audit delay and
audit firms' international
links: evidence from
Bangladesh
Managerial Auditing Journal
16/3 [2001] 129±133
Table I
International links of audit firms
Number of Qualification
Name of the firm partners of partners International firm with which linked
Rahman Rahman Haq and Co. 7 FCA KPMG
Acnabin & Co. 6 FCA Arthur Andersen
Howlader Younus and Co. 6 FCA Ernst & Young
Hoda Vasi Chowdhury and Co. 5 FCA Deloitte Touche Tohmatsu
M.J. Abedin and Co. 4 FCA Moore Stephen
A. Quasem and Co. 3 FCA PricewaterhouseCoopers
S.F. Ahmed and Co. 3 FCA Ernst & Young

Chi-square tests of association were
performed to determine whether any
significant difference among the audit firms
exists. The firms were classified into four
categories:
1 those associated with international firms
having AD less than five months;
2 those associated with international firms
having AD more than five months;
3 those not associated with international
firms having AD less than five months; and
4 those not associated with international
firms having AD more than five months.
Findings of the study
The audit report is the most important form
of communication used by the auditor. It
must clearly communicate the nature of
auditor's examination and the degree of
responsibility being taken. The date of an
audit report has a significance that the
general public does not always fully
understand. This is the date to which the
auditor assumes responsibility for detecting
subsequent events that might have a material
effect on the audited financial statements. It
is normally the date on which the auditor
completes his work in the client's office.
Although the auditor has no responsibility to
search subsequent events affecting financial
statements after the date of the report,
material events coming to his or her
attention between the date and the date the
financial statements are issued should be
reflected in the financial statements or the
auditor should qualify the report.
In 1997-1998, seven firms with international
links audited 45 sample companies out of 117
while the remaining 72 were audited by 35
firms with no apparent international links.
Among the international associated firms,
M.J. Abedin & Co. audited most of the sample
companies (15) followed by S.F. Ahmed & Co.
(10) and Rahman and Rahman & Co (7). On
the other hand, M.A. Malek Siddiqui Wali &
Co. audited most of the sample companies
(11), followed by Ahsan Kamal Sadeq & Co. (6)
and A. Wahab & Co. (6) from the other group
(see Table II).
Mean AD for all firms were 5.86 months
with standard deviation of 2.56. It is also
revealed that firms associated with
international firms had mean delay of 6.31
months with standard deviation of 2.95 (see
Table III). On the other hand, firms not
associated with international firms had
mean AD of 5.58 months with standard
deviation of 2.1.
It is also revealed that 58 samples out of 117
had delayed less than five months (of which
only 16 were associated with international
firms) and other 59 companies had delayed
more than five months (of which 29 were
associated with international firms).
Backer and Leung (1995) found that most
audit reports in Australia were dated three
months after the company's balance sheet
date with one audit being completed more
than four months after the end of the
financial period. In this study we have found
that only 14 out of 117 companies were dated
within three months of the balance sheet date
and 38 companies dated after seven months.
Hypothesis testing and result
A chi-square test of association was carried
out using the firms association with
international firms as the grouping variable
(see Table IV).
A 2  2 contingency table was set up to test
the hypothesis and the chi-square value was
20.54. Since the table value at df = 1 is 3.841 (at
5 percent significance level), the hypothesis
is rejected. Moreover, an examination of the
cell shows that a higher proportion (65
percent) of those companies audited by the
firms associated with international firms had
AD of more than five months.
Concluding remarks
Before drawing any conclusions, several
limiting aspects of this research should be
noted.
[ 131 ]
Shahed Imam, Table II
Zahir Uddin Ahmed and AD (in month interval) according to audit firms
Sadia Hasan Khan
Association of audit delay and AD (months)
audit firms' international
links: evidence from Name of the audit firm Statusa Total 1-3 3-5 5-7 7-9 9-11 11-13
Bangladesh
M.J. Abedin and Co. IL 15 0 2 2 5 6 0
Managerial Auditing Journal S.F. Ahmed and Co. IL 10 1 2 2 3 1 1
16/3 [2001] 129±133
Rahman Rahman Haq and Co. IL 7 3 2 1 0 1 0
Hoda Vasi Chowdhury and Co. IL 6 3 0 0 1 2 0
Howlader Younus and Co. IL 3 0 2 0 1 0 0
Acnabin & Co. IL 2 0 0 0 2 0 0
A. Quasem and Co. IL 2 0 1 0 0 1 0
M.A. Malek Siddiqui Wali & Co. NIL 11 1 8 2 0 0 0
Ahsan Kamal Sadeq & Co. NIL 6 2 2 1 0 1 0
A. Wahab & Co. NIL 6 1 2 2 0 1 0
Khan Wahab Shafique Rahman & Co. NIL 5 1 2 0 2 0 0
Mazumder & Co. NIL 5 0 3 1 1 0 0
N. Chakroborty & Co. NIL 3 0 3 0 0 0 0
Toha Anwar Rauf & Co. NIL 3 0 1 1 0 1 0
Ata Khan & Co. NIL 2 0 2 0 0 0 0
Kazi Zakir Khan & Co. NIL 2 0 1 1 0 0 0
M. Ahmed & Co. NIL 2 0 0 2 0 0 0
M.M. Rahman & Co. NIL 2 0 1 1 0 0 0
Otherb NIL 25 2 10 5 6 2 0
Total 117 14 44 21 21 16 1
Notes: a IL, firms have international link; NIL, firms do not have international link. b Other firms including firms
which have not audited more than one company are as follows: Ahsan Rashid & Co., Ahmed Shahid & Co., M.A.
Quader Kabir & Co., Ali Answar & Co., Ahmed Khan & Co., Haque Shahalam Mansur & Co., Mozammel Haque &
Co., Aziz Halim Anwar & Co., Aftab Ahmed & Co., Zahir Ahmed & Co., Rahman Mustafiz & Co., Chowdhury
Hossain Zaman & Co., S. Huda & Co., Mahfel Huq & Co., B.K. Bhattacharjee & Co., Md. Shahidullah & Co.,
Quamrul Ahsan Chowdhury & Co., Ahmed Zaker & Co., M. Ruhul Amin & Co., K.M. Alam & Co., Khaleque & Co.,
Nasir Md. & Co., and M.A. Fazal & Co.

processing complexity, reporting complexity,

Table III
relative mix of audit work performed at
Descriptive statistics of AD
interim and final dates, number of years
Category of firm Mean delay (months) SD Total sample company has been a client should be taken in
Associated with international firms 6.31 2.95 45 future studies on Bangladesh. Second, this
Not associated with international firms 5.58 2.10 72 study has examined AD for one year only and
Overall 5.86 2.56 117 the sample has covered only 53 percent out of
218 listed companies of the Dhaka Stock
Exchange.
Table IV With these caveats in mind, the study
The association between AD and audit firms' international link concludes that most of the audit reports in
AD (months) 1998 had lack of timeliness with a mean delay
Category of firm Less than five More than five Total of 5.86 months. The results of previous
Associated with international firms 16 29 45 studies on AD show that firms associated
Not associated with international firms 42 30 72 with international audit firms appear to
Total 58 59 117 provide motivation for shorter AD. In other
words, the findings on the association
First, audit firms' association with between AD and firms' characteristics
international firms is only one of the suggest that links with international firms
determinants as determined by other studies may have shorter ADs, though the results are
(see, for example, Gilling, 1977; Carslaw and not statistically significant. However, this
Kaplan, 1991). Other determinants such as study reveals that firms associated with
company size (based on total asset, turnover), international firms in Bangladesh produce
industry classification, size of income, longer AD with a mean delay of 6.31 months.
financial condition, company ownership, Moreover, 45 sample companies were audited
debt proportion, company year end, type of by audit firms associated with international
audit opinion, quality of internal control, firms and most of them had delayed more
operational complexity, electronic data than the mean delay.
[ 132 ]
Shahed Imam,
Zahir Uddin Ahmed and
Sadia Hasan Khan
Association of audit delay and
audit firms' international
links: evidence from
Bangladesh
Managerial Auditing Journal
16/3 [2001] 129±133
The Securities Exchange Commission and
the professional bodies in Bangladesh such
as the Institute of Chartered Accountants of
Bangladesh and the Institute of Cost and
Management Accountants of Bangladesh
have great responsibilities in this matter.
Furthermore, the auditors must be familiar
with the local accounting practices and the
rules with which accounts must accord. It
can also be argued that the statutory
requirements should be extended. The
auditor could have a legal duty to give an
opinion as to whether the company's
management is efficient, whether the
company's personnel have been involved in
fraud, or other illegal activity, and whether
management decisions have been
economically, efficiently and effectively
made and implemented. Moreover, the
auditors should do the audits in a consistent
and timely manner and use the same
yardstick throughout.
Note
1 Total sample was 115. However, two sample
companies have been audited by two audit
firms, so the total number of audit firms is 117.
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