Sultana Et Al - 2014 - Audit Committee Characteristics and Audit Report Lag

International Journal of Auditing
doi:10.1111/ijau.12033
Int. J. Audit. : (2014)
Audit Committee Characteristics and Audit Report Lag

Nigar Sultana, Harjinder Singh and J-L. W. Mitchell Van der Zahn
School of Accounting, Curtin University
This study seeks to determine whether audit committee compositional features are associated with the timeliness
of financial reporting by Australian firms. Timeliness of financial reporting by firms, of which the length of an
audit is a fundamental component, adds information content and impacts firm value, making an examination of
audit report lag determinants important. Results indicate that audit committee members with financial expertise,
prior audit committee experience and those who are independent are associated with shorter audit report lag.
Results suggest that legislation mandating audit committee financial expertise and independence are effective also
in improving the timeliness of financial reporting. More importantly, our results suggest that there may be benefits
in constituting audit committees with other compositional features such as prior committee experience in overall
efforts to improve the timeliness, and therefore quality, of financial reporting by firms.
Key words: Audit report lag, audit committee, financial reporting quality
INTRODUCTION
A double-edged information relevance-reliability
dilemma has long plagued external auditors. Prior
literature suggests that delays in the timely reporting
of accounting information significantly undermine the
quality of earnings, increase information asymmetry,
critically affect the chances of investors being defrauded,
enable well-informed investors to further utilise private
information to exploit less-informed investors and
increase uncertainty regarding investment evaluations
and expected payoffs (Hakansson, 1977; Bushman &
Smith, 2001). Provision of unverified financial accounting
statements and associated information, however,
automatically undermines the value of timely
information. There is, therefore, pressure on the external
auditor to complete the audit, and issue the audit report
without undue delay.
Emerging technology and new media forums only
serve to amplify the external auditors information
relevance-reliability dilemma in todays highly
reactionary news-driven society. Reductions in capital
flow barriers, increased market integration and the
development of high-frequency trading platforms enable
investors to participate in a broader set of investment
markets. However, these developments may also
contribute to greater market volatility. Consequently, the
demand for auditor-verified financial statements and
associated financial accounting information is ever more
essential. Understanding factors influencing the time
taken by the external auditor to issue the audit report
(termed audit report lag) is therefore an important area
of investigation. Such understanding can enhance the
development of effective corporate governance and
reporting protocols and procedures within firms that
enhance the delivery of timely, reliable financial
information to capital market participants.
Timeliness of financial reporting by firms is a
fundamental component of quality general purpose
reporting. Prior research has shown that timely financial
reporting adds information content and consequently
affects firm value (Beaver, Lambert & Morse, 1980;
Correspondence to: Harjinder Singh, Curtin University, GPO Box
U1987, Bentley 6845, Perth, Western Australia, Australia. Email:
h.singh@curtin.edu.au
2014 John Wiley & Sons Ltd
Schwartz & Soo, 1996; Blankley, Hurtt & MacGregor,

2014). The length of the annual audit has been identified
as the single most important determinant of timely
financial reporting by firms (Whittred, 1980b; Givoly &
Palmon, 1982; Knechel & Sharma, 2012). Therefore, the
timely disclosure of financial reporting through audited
financial statements plays an important role in firm
value and in reducing the information asymmetry of
financial information (Jaggi & Tsui, 1999; Lee, Mande &
Son, 2009). Due to recent high-profile accounting
disasters, legislators and investors have both become
increasingly concerned with the timeliness as well as the
quality of financial reporting. As such, research into the
factors that reduce audit report lag merit scholarly
attention and provide the motivation for this study.
Furthermore, given the clamour for information in the
timeliest period possible by demanding users of financial
information in the current decade, audit report lag and its
determinants certainly require in-depth investigation.
Although there is a rich and lengthy history of research
into determinants of audit report lag, the bulk of the
prior literature focuses on client qualities (e.g., size,
profitability, internal control, industry type), audit
function features (e.g., risk and complexity of the audit)
or external auditor characteristics (e.g., audit firm size,
expertise, specialisation, non-audit services). Research
examining the influence of a firms corporate governance
structure on audit report lag has been less forthcoming
with the overwhelming focus on the board of directors.
The underlying corporate governance structure of many
firms worldwide has shifted dramatically during the
past two decades. Whilst the board of directors maintains
overall responsibility for financial statements and
information issued, reformists, regulators, investors and
scholars alike continuously emphasise and reinforce
the need to delegate central oversight, accountability
and monitoring of the financial reporting process to an
audit committee. Corporate governance reforms, new
legislation and best practice guidelines introduced
globally during the past several decades have bolstered
the audit committees role and responsibilities in the
financial reporting process. Emergence of the audit
committees importance is likely to directly influence the
actions and activities of the external auditor, including
time taken to issue the audit report. Nonetheless, despite
such importance, Bedard and Gendron (2010) conclude
ISSN 1090-6738
N. Sultana et al.
(based on a comprehensive literature review) that

empirical analysis of any association is virtually
non-existent.
The primary objective of this study, therefore, is to
address the imbalance in the literature by examining
the association between audit report lag and key audit
committee characteristics found in the past literature
to most significantly influence audit committee
effectiveness. The six audit committee characteristics/
features examined in this study are audit committee
member financial expertise, prior audit committee
experience, gender diversity, audit committee size, audit
committee member independence and audit committee
diligence. Results from our examination will assist
regulators and reform advocates develop and re-focus
audit committee guidelines that yield greater benefits to
all capital market participants.
Data is hand-collected using a final pooled-sample of
494 firm-year observations from Australian Securities
Exchange (ASX) listed and incorporated firms (selected
using a stratified-random selection approach to control
for firm size bias) across the period 1 January 2004 to
31 December 2008. Aside from using contemporaneous
audit committee data, analysis is extended to the
influence of lagged audit committee features on audit
report lag. Our analysis is further extended to determine
if the six audit committee composition features are also
associated with a change in audit report lag.
Consistent with expectations, our analysis supports a
significant negative association between audit committee
financial expertise, prior audit committee experience and
audit committee independence with audit report lag. Our
results therefore suggest that audit committee members
with financial expertise, prior committee experience and
who are independent of management are most likely to
increase audit committee effectiveness and, in turn, may
be able to significantly reduce the time taken for the
auditor to issue the audit report. Contrary to predictions,
we find no evidence of a relation between audit report lag
and audit committee gender diversity, size and meeting
frequency.
Australia provides an interesting setting for examining
the audit committee determinants of audit report lag. For
instance, audit committees have a relatively new history
in Australia but have been a prime focus in the past
decades with the introduction of key corporate
governance reforms (i.e., ASX Corporate Governance and
Recommendations, Common Law Economic Reform
Program ((CLERP) 9). The limited history of audit
committees in Australia may assist in identifying more
clearly the reforms introduced recently that were likely
to have been of greater benefit to the market. Also, studies
suggest greater diversity of audit firms participating
in the Australian audit market and such diversity may
provide unique insights into the audit committee/
audit report lag linkage. Finally, litigation risk is more
subdued in Australia than other institutional settings
such as the United States (US). Consequently, the audit
committees importance in ensuring that disclosed
financial information is timely and reliable is heightened
given that litigation is not ordinarily used as a mechanism
to influence the quality of reported financial information
by firms, as users tend to look instead towards the audit
committee to ensure the quality of financial reporting.
Overall, this study makes several key contributions.
Findings highlight to regulators and reform advocates the
impact of enforcing specific composition requirements on
an audit committee from an information timeliness

perspective and this has direct resourcing implications for
the management of firms. Results lend credence to the
belief that effective corporate governance mechanisms
increase the timeliness and, therefore, the quality of
financial reporting by firms. Our analysis also fills a gap
in the extant literature where empirical evidence of
how the audit committee influences audit report lag is
scant. This is particularly important as regulators and
reform advocates continue to promote the role and
responsibilities of the audit committee in improving
the quality of financial reporting, including its timeliness.
This study also introduces improvements to the prior
literature by collectively examining six key audit
committee features found to dominate audit committee
effectiveness. Finally, results further enhance an
understanding of audit report lag determinants and raise
implications for the potential introduction of regulations
governing such factors.
The remainder of the paper is organised as follows. The
next section reviews the literature on audit committees
and audit report lag and is followed by the development
of this studys hypotheses. The data and research
methodology is then outlined, before we go on to report
descriptive statistics, correlations, main results and
sensitivity tests. The final section concludes by
summarising findings, discussing implications from our
results, identifying limitations and making suggestions
for future research.
LITERATURE REVIEW
Timely release of financial information by firms is an
important aspect of financial reporting playing a
fundamental role in the information marketplace and in
the investment decisions made by users. Audit report lag
jeopardises the quality of financial information by not
providing timely information to key stakeholders. In
principle, it is argued that there is an inverse relationship
between information value and the time taken to prepare
financial statements, specifically the longer the time taken
by the auditor to complete the audit, as reflected in the
audit report lag, the stronger the signal to the market as
there may be negative issues arising from the audit.
Acknowledging the theoretical and practical importance
of timely financial information to the decision-making
process of capital market participants, regulators such
as the Securities and Exchange Commission (SEC) and
the ASX have established mandatory time periods within
which firms are required to provide audited financial
statements to shareholders and other key stakeholders
via statutory filing requirements. Past studies have
determined that delays in the timely release of financial
reports can adversely impact firm value (Givoly &
Palmon, 1982; Blankley et al., 2014). Specifically, Beaver
et al. (1980) pointed out that investors postponed
transactional activity of securities until earnings
announcements were made. Similarly, Givoly and
Palmon (1982) determined that the share price reaction to
early earnings announcements was more significant than
the reaction to late announcements, suggesting that the
early release of financial performance data was viewed
more favourably. Blankley et al. (2014) found that,
compared to non-restating firms, firms that eventually
restate their financial statements have longer abnormal
audit report lags. The corporate governance framework
within firms, particularly audit committees, should
Int. J. Audit. : (2014)
therefore ensure that all material financial reporting

matters be made on time, including information relating
to financial performance and governance, to key
investors and other participants.
Research on audit report lag has a lengthy history
spanning 30 years. Seminal research in Australia on the
timeliness of annual financial reporting by firms traces
back to early work undertaken by Dyer and McHugh
(1975) and Whittred (1980b). Dyer and McHugh (1975)
suggest the existence of three principal lags in the
timeliness of financial reporting: preliminary lag (interval
between year-end and receipt of preliminary final
statements by the Sydney Stock Exchange); auditors
signature lag (interval between year-end and date of
auditors report); and total lag (interval between year-end
and receipt of published annual report by the Sydney
Stock Exchange). Since then, preliminary lag has become
largely irrelevant given that preliminary final statements
are no longer lodged. As such, only audit report lag
remains of current research interest. The concept and
consequences of audit report lag are generally universally
accepted within the literature and as such, the
overwhelming focus of the majority of research is on
identifying audit report lag determinants. The
predominant setting for the majority of audit report lag
determinant studies are developed markets in North
America (Givoly & Palmon, 1982; Knechel & Payne, 2001;
Lee et al., 2009; Blankley et al., 2014), Europe (Soltani,
2002; Owusu-Ansah & Leventis, 2006) and Oceania
(Davies & Whittred, 1980; Carslaw & Kaplan, 1991). In
the past decade, however, audit report lag determinant
studies in emerging markets have garnered greater
attention (Jaggi & Tsui, 1999; Haw et al., 2003).
Client firm-level characteristics (e.g., firm size,
industry type, profitability, leverage, financial statement
content and restatements) have been the primary
concentration of prior audit report lag determinant
studies (Davies & Whittred, 1980; Ashton & Wright, 1989;
Ettredge, Li & Sun, 2006; Munsif, Raghunandan &
Dasaratha, 2012; Blankley et al., 2014). Another major
audit report lag determinant research stream involves the
examination of external auditor features such as auditor
size, structure of the external auditor, provision of
non-audit services, auditor tenure, audit firm technology,
audit partner rotation and auditor changes (Bamber,
Bamber & Schoderbek, 1993; Jaggi & Tsui, 1999; Lee et al.,
2009; Tanyi, Raghunandan & Barua, 2010; Knechel &
Sharma, 2012).
Whilst corporate governance has received enormous
attention from scholars, advocacy groups and the
popular media during the past several decades, studies
examining links with audit report lags are scarce. Of the
audit report lag studies to have considered corporate
governance determinants, ownership structure (Jaggi &
Tsui, 1999; Ettredge et al., 2005) and internal controls
(Ashton, Willingham & Elliot, 1987; Ettredge et al., 2006;
Munsif et al., 2012) have received the greatest attention.
Despite prior research linking the structure of key
corporate governance mechanisms (e.g., board of
directors, audit committee, remuneration committee) to
major financial accounting issues (e.g., disclosure levels,
earnings quality, management and manipulation of
earnings), studies of their influence on audit report lag is
lacking. According to Bedard and Gendron (2010), the
examination of the audit committee characteristics/audit
report lag linkage has been less than forthcoming (if not
non-existent).
Scholars, corporate governance reformists and

regulators alike have increasingly promoted the pivotal
role of the audit committee in the financial reporting
process as evidenced by the swath of empirical research,
corporate governance pronouncements (Cadbury
Report, 1992; Blue Ribbon Committee, 1999; Petra,
2006) and introduction of legislation, policies and
recommendations (e.g., Sarbanes-Oxley Act in 2002 and
CLERP 9 in 2004). As the SEC (1999, p. 1) states, audit
committees play a critical role in the financial reporting
system by overseeing and monitoring managements and
the independent auditors participation in the financial
reporting process. Audit committees can, and should, be
the corporate participant best able to perform that
oversight function.
The audit committee serves as a major communication
intermediary between major parties in the financial
reporting process (e.g., board of directors, corporate
management, internal auditors and external auditors)
by providing a key monitoring oversight function (e.g.,
via reviews to nominate auditors, scope of external and
internal audit work, implementation of internal controls).
Also, the audit committee is charged with protecting
investor interests by ensuring the high quality of financial
information disclosed; monitoring accounting policy
choices; hiring, performance managing, if appropriate,
and maintaining the independence of the external
auditor; compliance with regulatory requirements;
monitoring and oversight of the internal audit function;
and evaluation of risk management practices (Collier &
Gregory, 1999; Goodwin, 2003).
As many of the audit committees roles and
responsibilities are directed towards improving the
financial reporting process, scholars inevitably highlight
the audit committees likely impact on the quality of
accounting earnings. Klein (2002), for example, stated
that the central role of the audit committee is to reduce
the magnitude of abnormal accruals, thereby enhancing
earnings quality. In ensuring the quality of earnings, the
audit committee is likely to pay attention to the timeliness
of reported information, and whether disclosed
information (where necessary) has been effectively
verified. Thus, audit report lag is likely to be a
consideration within the purview of the audit committee
to enhance the quality of earnings.
Various incentives may underpin why an audit
committee may be motivated to minimise protracted
audit report lags. For instance, earnings quality is cited as
a key benchmark of an audit committees success and
reputation (including its individual members). Ensuring
the disclosure of reliable information to the marketplace
in a timely manner will best aid in preserving the quality
of earnings and better enable users to make effective
decisions. Protracted delays in issuing the audit report
will undermine the quality of earnings and diminish
the audit committees reputational capital with users
possibly assessing the sub-committee as being ineffective
in its intermediary role. Individual audit committee
members (particularly independent directors) are likely
to favour shorter audit report lags to maintain individual
reputational capital, minimise litigation risks and to
enhance future board appointment opportunities.
Prior research suggests that the audit committees
ability to accomplish any required and/or perceived
roles and responsibilities is dependent on the
sub-committees effectiveness. The extant literature
details a number of factors thought to affect audit
Int. J. Audit. : (2014)
N. Sultana et al.
committee effectiveness (McMullen & Raghunandan,

1996; Blue Ribbon Committee, 1999; DeZoort et al., 2002;
Klein, 2002). DeZoort et al. (2002), in particular, who
complete a synthesis of the empirical audit committee
literature, suggest that factors influencing audit
committee effectiveness can be categorised into four
major groups: (a) arrangement (i.e., audit committee
independence, size and duality); (b) resources (i.e.,
financial expertise, committee experience); (c) authority
(i.e., power enshrined in the committee); and (d)
diligence (i.e., frequency of committee meeting). Broadly
speaking, the overwhelming majority of factors thought
to influence audit committee composition dominate
the sub-committees effectiveness. Six audit committee
composition factors that have received extensive
attention in the extant literature are committee financial
expertise, committee experience, gender diversity,
committee size, committee independence and committee
diligence (Goodstein, Gautam & Boeker, 1994; Huse,
1998; DeZoort et al., 2002; Ingley & Van der Walt, 2002).
management disagreements, thereby ultimately reducing

audit report lag. Furthermore, members with financial
expertise will assist the audit committee develop more
effective internal controls and risk management
processes (McDaniel, Marint & Maines, 2002; Cohen et al.,
2013). In supporting the presence of financial experts on
the audit committee, resource dependency advocates
argue such a presence enables the sub-committee to
retain greater power over financial accounting
information and audit judgements. Without financial
expertise, the audit committee is heavily reliant upon the
external auditor providing assurance that key financial
accounting figures (e.g., earnings) are reliable and
relevant to external decision makers (DeFond, Hann &
Hu, 2005; Sultana & Van der Zahn, 2013).1 The following
hypothesis is proposed in examining the relationship
between audit committee financial expertise and audit
report lag:
HYPOTHESES DEVELOPMENT
Audit committee prior experience
The primary theoretical perspective underlying the

hypotheses development is agency theory. Insights
drawn from resource dependency theory, however,
are also used to complement agency theory perspectives,
particularly in regard to audit committee size and gender.
Both agency theory and resource dependency theory
advocates emphasise a need for human-actor
dependent corporate governance mechanisms (e.g.,
board of directors, audit committee) to be designed,
balanced and structured to achieve group cohesion.
Agency theory assumes that all corporate contracting
parties act in their own self-interests (Jensen & Meckling,
1976; Eisenhardt, 1989). Agency theory advocates argue
that human-actor dependent corporate governance
mechanisms need to be structured so as to minimise the
ability of agents (i.e., corporate management) to act
in their own self-interests at the detriment of the
principals (i.e., shareholders). Resource dependency
theory, meanwhile, primarily focuses on the flow and
exchange of resources between firms and its resource
suppliers. Advocates of resource dependence theory
argue that a firm responds to, and is dependent upon,
actors or organisations in the firms environment that
control resources critical to its operations, and over which
it has (at times) tenuous control (Oliver, 1997; Hillman
& Dalziel, 2003). The objective and role of humandependent corporate governance mechanisms is
therefore to maximise the firms resource power (i.e.,
strength to acquire reliable resource supplies whilst
ensuring others are reliant upon them).
Agency and resource dependency theory arguments

support the inclusion of individuals on the audit
committee with prior corporate governance and audit
committee expertise. From an agency theory perspective,
such prior experience increases the audit committees
ability to effectively monitor corporate management and
the external auditor. Resource dependence theory,
meanwhile, suggests that the inclusion of members with
prior committee experience enables the sub-committee
to retain power over financial accounting information
and related disclosures rather than relying on corporate
management and the external auditor. Overall, prior
experience enables an audit committee member to be
more efficient and effective in understanding the
requirements and responsibilities of the sub-committee
and its members (DeZoort, 1998; Beasley & Salterio,
2001). Furthermore, prior audit committee experience
will provide the audit committee with greater knowledge
and assurance in negotiations with the external auditor,
and in mediating corporate management/external
auditor disagreements, thereby reducing overall audit
report lag (Bedard & Biggs, 1991; DeZoort & Salterio,
2001; DeZoort, Hermanson & Houston, 2003). The
following hypothesis is proposed in examining the
relationship between audit committee prior experience
and audit report lag:
Audit committee characteristics and audit

report lag
Agency and resource dependency theories diverge on

the potential influence of audit committee gender.
Agency theorists suggest the audit committees
effectiveness is dependent upon group cohesion. Prior
gender diversity research suggests females are more
financially conservative, ethically bound and risk-averse
than males (Levin, Taylor & Chatters, 1993; Powell &
Anisc, 1997). Such attitudinal differences towards key
business concepts (e.g., risk, finances) can significantly
impact financial accounting and auditing as group
dynamics (particularly in small groups like the audit
committee) and cohesion is undermined, making
decision-making processes and corporate governance
Audit committee financial expertise

A substantial amount of recent audit committee research
and debate stresses the need for sub-committee members
to be knowledgeable in financial reporting and auditing
(DeZoort, 1998; Beasley & Salterio, 2001). Agency theory
advocates argue that the presence of members with
financial expertise enhances the audit committees ability
to ensure the external auditors work is competently
undertaken, comprehend audit judgements and
understand and mediate during auditor/corporate
H1: There is a negative association between audit

committee financial expertise and audit report lag.

committee prior experience and audit report lag.
Audit committee gender
Int. J. Audit. : (2014)
mechanisms less effective and efficient (Powell & Anisc,

1997). Further, gender differences may fragment small
group dynamics leading to the formation of majority and
minority sub-groups. Thus, from an agency perspective,
gender differences may reduce the audit committees
effectiveness.
In contrast, resource dependency theorists subscribe
to the view that broader social representation within
a group assists in the importation of different ideas,
views and experience. Consequently, key corporate
governance mechanisms such as the audit committee
will be able to consider a broader spectrum of financial
accounting issues, thereby reducing chances of
fraudulent and misrepresentative accounting practices
(Pucheta-Martinez & Fuentes, 2007; Gul, Srinidhi &
Ng, 2011). Without gender diversity, resource
dependency advocates argue that boards of directors and
sub-committees are prone to the adoption of a
groupthink mentality.2 If all members of the audit
committee share very similar mind-sets, the groupthink
mentality can lead to major flaws in assessing and
dealing with the sub-committees tasks (such as
overseeing the timely release of financial information) as
perceptions are limited (Owusu-Ansah & Leventis, 2006;
Gold, Hunton & Gomaa, 2009). Given that the influence
of audit committee gender on audit report lag is mixed in
terms of directionality, the following hypothesis is
proposed:
H3: There is a significant association between audit
committee gender diversity and audit report lag.
Audit committee size

Agency and resource dependency theorists differ on
the impact of the audit committees size on its
effectiveness. Agency theory suggests group dynamics
and cohesion will be enhanced by a smaller audit
committee. Advocates (Collier & Gregory, 1999; Hillman
& Dalziel, 2003) argue that as size of the audit
committee increases, control and monitoring functions
are impaired. Furthermore, a larger audit committee is
likely to increase chances for opportunistic behaviour
as the sub-committee is bloated, such that formation
of a collective decision-making mind-set is problematic
(Mintzberg, 1983). Others (Evans & Dion, 1991; Jensen &
Tang, 1993) suggest that a larger audit committee
can lead to a free-member problem with a lack of
active participation by some members undermining
cohesion, and ultimately diminishing the audit
committees ability to achieve vital consensus on control
and monitoring.
Conversely, resource dependence theory advocates
argue a larger audit committee enables the appointment
of members with a broader set of qualities such as
expertise, experience, knowledge and connections.
According to resource dependence advocates, the wider
set of views offered by a larger committee will enable
the audit committee to better assess the role,
responsibilities and work performed by the external
auditor (DeZoort et al., 2002; Turley & Zaman, 2007). As
such, a larger audit committee will enable the subcommittee to draw on a wider set of skills to better
enable mediation efforts to resolve conflicts such as with
the audit report (DeZoort et al., 2003). Given that the
influence of audit committee size on audit report lag is
mixed in terms of directionality, the following
hypothesis is proposed:
H4: There is a significant association between audit

committee size and audit report lag.
Audit committee independence

Audit committee independence has been of major
interest to reformists, regulators and researchers (Blue
Ribbon Committee, 1999; Abbott, Park & Parker, 2000).
Agency and resource dependence theory advocates
proclaim similar views, arguing that an audit committee
with a higher proportion of outside directors is less
likely to be compromised in undertaking the subcommittees roles and responsibilities. Furthermore, a
more independent audit committee is likely to be better
able to enhance key financial accounting issues such as
earnings quality, dealings with the external auditor and
mediation of disputes due to a lack of bias (Klein, 2002;
Bedard, Chtourou & Courteau, 2004). Empirical findings
generally support the perception that independent audit
committees are more effective in constraining corporate
management and reducing fraudulent and misleading
financial statements (McMullen & Raghunandan, 1996;
Bedard et al., 2004). Also, prior literature suggests that
audit committees comprising a majority of independent
directors are more likely to improve the financial
reporting quality of firms by hiring industry specialist
auditors, employing an internal audit function within the
firm and engaging in higher levels of accounting
conservatism (Goodwin, 2003). Overall, the actions of a
more independent audit committee are therefore likely
to reduce the time taken to issue the audit report.
The following hypothesis is proposed in examining the
relationship between audit committee independence and
audit report lag:
committee independence and audit report lag.
Audit committee diligence

It is argued that an audit committee can only fulfil its
functions (e.g., ensuring the timely provision of the
audit report) through constant levels of activity. Best
practice guidelines (Blue Ribbon Committee, 1999;
Corporate Governance Committee, 2001) suggest that
audit committees meet a minimum of three or four
times during the firms financial period. By meeting
more frequently, the audit committee will be better
placed to actively address the various changing and
challenging complexities of the uncertain business and
financial environment (Vafeas, 1999; Bedard et al., 2004;
Stewart & Munro, 2007). Also, a more active audit
committee is better equipped to detect and prevent
opportunistic behaviour by management, thereby
ensuring the integrity of reported earnings (Vafeas,
1999; Bedard et al., 2004; Stewart & Munro, 2007). Past
research also provides evidence that a more diligent
audit committee is less likely to issue fraudulent and
misleading statements, use discretionary accruals to
manage earnings and more likely to detect and report
internal control weaknesses (Krishnan & Visvanathan,
2007). In general, actions of a more active audit
committee are therefore likely to reduce the time taken
to issue an audit report. The following hypothesis is
proposed in examining the relationship between audit
committee diligence and audit report lag:
committee diligence and audit report lag.
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N. Sultana et al.
RESEARCH METHODOLOGY
The following sub-sections provide details of the sample
selected, source documentation, measurement details for
all the variables in this study and specify the statistical
models utilised to formally test the hypotheses of this
study.
Sample selection
Due to the time-consuming task of hand collecting
key longitudinal data, analysis is limited to a
stratified-randomly selected sample of 100 firms
continuously listed on the ASX from 1 January 2004 to 31
December 2008.3 A stratified-random approach is used to
control for potential firm size bias.
The studys initial sample comprises 2,128 firms listed
on the ASX as at 1 January 2004. Consistent with prior
research (e.g., Ball, Kothari & Robin, 2000; Ruddock,
Taylor & Taylor, 2006), financial (133), insurance (10),
utilities (30), IPO (106) and trust (92) firms are excluded.
Consistent also with Clifford and Evans (1997), foreign
incorporated and domiciled firms (64) are excluded,
because their financial statements are not necessarily
prepared in accordance with Australian disclosure
requirements. To avoid the undue influences of
unexpected share price changes, 222 firms not
continuously listed on the ASX throughout the entire
observation period (i.e., firms de-listed and subsequently
re-listed) were eliminated. Finally, 381 firms are excluded
due to missing data.
Following exclusions, the useable pool to conduct the
stratified-random sample selection comprised 1,090
firms that were ranked by market capitalisation (as at 1
January 2004) before being categorised into quartiles.
Following Balvers, Cosimano and McDonald (1990), 25
firms are randomly selected from each quartile. Annual
data spanning a five-year period (20042008) is collected4
for the 100 selected firms allowing for a maximum of
500 firm-year observations for the final sample. Six
firm-year observations are, however, excluded due to
data reliability concerns or incomplete information.
Consequently, the main analysis is based on 494 firmyear observations. Panel A of Table 1 provides a summary
of the sample selection process, whilst Panel B of
Table 1 presents an industry breakdown (by firm-year
observations) of the final useable sample.
Measurement of all variables

Consistent with prior literature, audit report lag (denoted
ARLit) is measured as the difference (in number of days)
from the end of financial year of firm i in period t to the
day the external auditor signs the audit report. To
minimise data loss and extreme values in the regression
analysis, continuous values were winsorised at the 1st
and 99th percentile.
Following prior work (Collier & Gregory, 1996;
McMullen & Raghunandan, 1996; DeZoort et al., 2002),
we use six audit committee variables best proxying audit
committee effectiveness for analysis. In relation to audit
committee financial expertise, the variable denoted
F_Expertiseit is an indicator variable that takes the value of
one if at least one director of the audit committee of firm
i in time period t has necessary expertise (based on
educational, professional affiliations and/or a for-profit
role) to be financially qualified; and zero otherwise. In the
case of audit committee experience, the variable denoted
Table 1: Sample selection and industry breakdown

Panel A: Sample selection
Number of firms listed on ASX
as at 1 January 2004
2,128
Exclusions:
Financial institutions
Insurance
Utilities
IPO firms
Trust
Foreign incorporated firms
Firms that are not continuously
listed
Missing data
Total Number Excluded:
Sample pool for random selection
Number randomly selected by
Quartiles per year
Excluded due to missing data
(133)
(10)
(30)
(106)
(92)
(64)
(222)
(381)
100*5
(1,038)
1,090
500
(6)
Final useable sample
494
Panel B: Sample firm break down by industry

ASX Industry
Consumer Discretionary
Consumer Staples
Energy
Health Care
Industrials
Information Technology
Materials
Telecommunication Services
Total
No. firm-year
observations
80
19
35
70
128
34
115
13
494
%
Sample
16.19
3.85
7.09
14.17
25.91
6.88
23.28
2.63
100
Experienceit takes the value of one if at least one director of

the audit committee of firm i in time period t has prior
audit committee experience; and zero otherwise. The
variable denoted Femaleit takes the value of one if at least
one director of the audit committee of firm i in time
period t is female; and zero otherwise. In relation to audit
committee size, the variable denoted Sizeit takes the value
of one if the number of members of the audit committee
of firm i in time period t are greater than three; and zero
otherwise (ASX Corporate Governance Council, 2007).
The variable denoted Independenceit takes the value of one
if the majority of the audit committee of firm i in time
period t are independent directors; and zero otherwise.
Finally, in the case of audit committee diligence, the
variable denoted Meetingsit takes the value of one if the
audit committee of firm i in time period t meets at least
four times or more a year (or if the board acts as a
surrogate audit committee, the board then meets 10 times
or more a year); and zero otherwise (ASX Corporate
Governance Council, 2007).
A number of firm and governance characteristics are
used as control variables as they have been found to be
associated with audit report lag. Prior research (Ashton &
Wright, 1989) suggests that larger, well-established audit
firms have greater resources and specialists to draw
upon, and are therefore associated with shorter audit
reporting delays. To control for audit firm size, the
variable Big4it is scored one if the external auditor
appointed to verify the financial statements of firm i for
the period t is a Big4 audit firm (i.e., KPMG, Deloitte,
Ernst and Young or PriceWaterhouseCoopers); and zero
otherwise. The majority of prior research also indicates a
Int. J. Audit. : (2014)
negative association between audit reporting lag and firm

size (Ashton & Wright, 1989; Carslaw & Kaplan, 1991).
For firm size, the variable LnAssetsit is measured as the
natural logarithm of the book value of total assets of firm
i at end of time period t.
Highly leveraged firms are likely to prompt an auditor
to undertake greater care and checks that contribute to
longer audit report lags. The variable Leverageit is
measured as total assets divided by total assets minus total
liabilities of firm i at the end of time period t.5 Furthermore,
a strong growth-centric firm may be perceived by an audit
firm as being of higher risk due to more aggressive
opportunistic behaviour of corporate management.
Accordingly, more time and effort is allocated to testing
and verifying financial statements leading to an extended
audit report lag. Growth opportunity (denoted Growthit) is
reflected in the market-to-book ratio of firm i for time
period t measured as a ratio of market value of equity to
book value of equity. Empirical evidence (Knechel &
Payne, 2001) shows that the larger concentration of audits
clustered around a specific time period (i.e., end of
financial year) causes scheduling problems for audit firms
leading to longer audit report lags. The variable Busyit is
scored one if the end of financial year of firm i in period t
is 30 June; and zero otherwise. Firm risk, qualified audit
opinion and the underlying industry nature (e.g.,
industrial, resource, services) is also thought to influence
audit report lag (Whittred, 1980a). Risk (denoted Riskit) is
measured as the ratio of current liabilities to current assets
of firm i for period t. Meanwhile, the variable Qual_Rit
(representing audit opinion) is scored one if the audit
report for the financial statements of firm i for period t is
qualified; and zero otherwise. Finally, firm i is scored one if
the entity is defined as being within an Industrials and/or
Materials ASX GICS business sector; and zero otherwise.
Corporate governance advocates, investors, regulators
and scholars alike argue that board of directors are
quintessential in the effective functioning of major
corporate governance mechanisms within firms. Such
influence can extend to the issuance of the audit report.
For instance, a more effective board can enhance work
undertaken by the auditor by resolving auditor conflicts
with management more swiftly (Beasley, 1996). This
study therefore controls for board size and duality.
Specifically, the board size (denoted B_Sizeit) of firm i is
measured as the total number of individuals on the board
at the end of time period t. Meanwhile, a dichotomous
approach is used to measure duality (denoted Dualityit)
with firm i scored one if the same individual holds the
roles of chairperson of the board and CEO at the end of
time period t; and zero otherwise.
Statistical tests and models

The main OLS regression tests performed to formally test
the hypotheses are based on the models specified by the
following three equations:
ARLit = 0 + 1F_Expertiseit + 2Experienceit + 3 Femaleit

+ 4Sizeit + 5 Independenceit + 6 Meetingsit
+ 7 Big 4it + 8 LnAssetsit + 9 Leverageit
+ 10Growthit + 11Busyit + 12 Riskit + 13Qual_Rit
+ 14 Industry it + 15B_Sizeit
+ 16Duality it + Year + it
(1)
ARLit = 0 + 1F_Expertiseit 1 + 2Experienceit 1

+ 3 Femaleit 1 + 4Sizeit 1 + 5 Independenceit 1
+ 6 Meetingsit 1 + 7 Big 4it + 8 LnAssetsit
+ 9 Leverageit + 10Growthit + 11Busyit + 12 Riskit
+ 133Qual_Rit + 14 Industry it + 15B_Sizeit
(2)
ARLit = 0 + 1F_Expertiseit + 2Experienceit + 3 Femaleit

+ 4Sizeit + 5 Independenceit + 6 Meetingsit
+ 7 Big 4it + 8 LnAssetsit + 9 Leverageit
+ 10Growthit + 11Busyit + 12 Riskit + 13Qual_Rit
+ 14 Industry it + 15B_Sizeit
(3)
where:
ARLit = Number of days from the end of financial year of
firm i in period t to the day the external auditor signs
the audit report;
F_Expertiseit = Indicator variable that takes the value of one
if at least one director of the audit committee of firm i
in time period t has necessary expertise (based on
educational, professional affiliations and/or a for-profit
role) to be financially qualified; and zero otherwise;
Experienceit = Indicator variable that takes the value of one
if at least one director of the audit committee of firm i
in time period t has prior audit committee experience;
and zero otherwise;
Femaleit = Indicator variable that takes the value of one if at
least one director of the audit committee of firm i in
time period t is female; and zero otherwise;
Sizeit = Indicator variable that takes the value of one if the
number of members of the audit committee of firm i in
time period t are greater than three; and zero
otherwise;
Independenceit = Indicator variable that takes the value of
one if the majority of the audit committee of firm i
in time period t are independent directors; and zero
otherwise;
Meetingsit = Indicator variable that takes the value of one if
the audit committee of firm i in time period t meets at
least four times or more a year (or if the board acts as a
surrogate audit committee, the board then meets 10
times or more a year); and zero otherwise;
Big4it = Indicator variable is scored one if the external
auditor appointed to verify the financial statements
of firm i for the period t is a Big4 audit firm (i.e.,
KPMG, Deloitte, Ernst and Young or PriceWaterhouse
Coopers); and zero otherwise;
LnAssetsit = Natural logarithm of the book value of total
assets of firm i at end of time period t;
Leverageit = Total assets divided by total assets minus total
liabilities of firm i at the end of time period t;
Growthit = Market-to-book ratio of firm i for time period t
measured as a ratio of market value of equity and book
value of equity;
Busyit = Indicator variable is scored one if the end of
financial year for firm i for period t is 30 June; and zero
otherwise;
Riskit = Ratio of current liabilities to current assets of firm
i for period t;
Qual_Rit = Indicator variable is scored one if the audit
report for the financial statements of firm i for period t
is qualified; and zero otherwise;
Int. J. Audit. : (2014)
Industryit = Indicator variable is scored one if firm i is

defined as being within an Industrials and/or
Materials ASX GICS business sector; and zero
otherwise;
B_Sizeit = Number of members on the board of directors
of firm i at the end of period t;
Dualityit = Indicator variable is scored one if the same
individual holds the positions of chairperson of the
Board and CEO for firm i at the end of period t; and
zero otherwise;
Year = Series indicator variables controlling time
temporal differences of reporting periods for firm-year
observations scored one if the financial data of firm i
corresponds to time period t; and zero otherwise;
0 = Intercept term;
116 = Coefficients on the independent and control
variables;
it = Error term;
t 1 = Each audit committee characteristic lagged by one
year; and
ARLit = Change in the audit report lag of a firm by one
year.
Equation (1) specifies the first regression model
examining the effect of six individual audit committee
characteristics on audit report lag. If the audit committee
characteristics are significant predictors in Model 1, the
coefficients 1, 2, 5 and 6 (equating to H1, H2, H5 and H6)
are expected to be negative and statistically significant.
As H3 and H4 are non-directional, the coefficients 3
and 4 are predicted to be statistically significant when
the regression based on Model 1 is run (with variables
Femaleit and Sizeit included). Equation (2) specifies a
second model which examines the lagged impact of
the same six audit committee characteristics on
contemporaneous audit report lag. This approach takes
into account the possibility that the influence of a
corporate governance mechanism is not immediate but
influences future financial accounting events (in this
case, audit report lag). Finally, Equation (3) formulates
a third model investigating the influence of the six
contemporaneous audit committee characteristics on the
change in audit report lag. Specifically, a logistic
regression is performed to determine if the audit
committee characteristics examined are associated with a
faster audit report issuance in the current period relative
to the prior period.
EMPIRICAL RESULTS
The following sub-section details descriptive statistics
and correlation results followed subsequently with the
reporting of the main multivariate results.
Descriptive statistics and correlations

Table 2 presents descriptive statistics for the pooled
sample of 494 firm-year observations. The mean (median)
ARLit value of 80.67 days (87.00 days) is slightly higher
than prior audit report lag studies using Australian data
(Lai & Cheuk, 2005). In terms of percentiles, firms below
the 25th percentile had a maximum ARLit value of 60 days
with all firms above the 75th percentile taking more than
the statutory maximum time of 90 days to complete their
audit. Relative to international research, findings
reinforce the perception that the audit report lag in
Australia is greater than other developed economies such
N. Sultana et al.
as the US, Canada, New Zealand and the UK (Ashton

et al., 1987; Schwartz & Soo, 1996). Minimum and
maximum ARLit values after winsorising are 35 days and
204 days respectively.
On average, nearly one individual (i.e., 0.970) or a third
(i.e., 31.4%) of audit committee members are financial
experts. Across the pooled sample, 77% of firms had
at least one individual on the audit committee with
financial expertise and the maximum on any single
audit committee is three members. In terms of prior audit
committee experience, 1.49 persons or 46.3% of the
audit committee members had previously served on the
audit committee of another Australian publicly listed
firm. Overall, 76% of pooled-sample firms had at least
one member of the audit committee with prior committee
experience. Thirteen per cent of audit committee
members were female with maximum number being
two.
Consistent with prior Australian audit committee
research (and other international studies), the average
audit committee size of pooled-sample firms marginally
exceeds three (i.e., 3.16) (Goodwin, 2003) with the
maximum number of individuals on any given audit
committee being six. Overall, 30% of the pooled sample
had an audit committee in excess of the minimum ASX
recommendation of three members. On average, 1.73 (or
54.6%) of audit committee members were independent.
Sixty per cent of the pooled sample had audit
committees comprised of a majority of independent
directors. During the reporting period, audit committees
met on average 3.4 times. The minimum number of
annual meetings is once and the maximum 13. Just over
a third (i.e., 35%) of the audit committees met four times
or more.
As for control variables, 57% of the pooled-sample
firms engaged a Big4 audit firm. This finding is consistent
with prior Australian capital and audit market research
but is slightly lower than in other international settings
(Van der Zahn & Tower, 2005). The majority of the
pooled-sample firms (i.e., 87%) had financial year-ends
coinciding with 30 June. Meanwhile, less than a tenth
(i.e., 9.0%) of the pooled-sample firms received qualified
audit reports. Average board size (i.e., 5.27) is marginally
lower than reported in some previous Australian and
international corporate governance studies (Van der Zahn
& Tower, 2005). In contrast, the percentage of firms
with the same individual serving as the board
chairperson and chief executive officer (i.e., 11%) is lower
than other international capital markets in Asia or the
US (Donaldson & Davis, 1991; Carcello et al., 2006).
Industry representation is slightly lower than the
overall Australian capital market, with only 40% of
pooled-sample firms from the ASX GICS Industrial
and/or Materials business sectors.
Correlation analysis (using both Pearson and Spearman
correlations) is performed to identify pairwise univariate
associations, and to detect possible multicollinearity
problems (Gujarati, 2003). The correlation analysis
(Pearson values reported in the bottom half and Spearman
the top half) is shown in Table 3.
Table 3 results indicate a negative and significant
association between audit report lag (i.e., ARLit) and: (a)
audit committee member financial expertise (i.e.,
F_Expertiseit); (b) prior audit committee experience (i.e.,
Experienceit); (c) audit committee independence
(AS_Independenceit); and (d) diligence (i.e., Meetingsit). On
a univariate basis, these findings are as predicted in H1,
Int. J. Audit. : (2014)
Table 2: Descriptive statistics

Variables
Meana
Median
Std. Dev.
Minimum
Maximum
ARLit
#No_F_Expertiseit
Pro_F_Expertiseit
F_Expertiseit
#No_Experienceit
Pro_Experienceit
Experienceit
#No_Femaleit
Pro_Femaleit
Femaleit
#No_Sizeit
Sizeit
#No_Independenceit
Pro_Independenceit
Independenceit
#No_Meetingsit
Meetingsit
Big4it
Total Assets (AUD$000)
LnAssetsit
Leverageit
Growthit
Busyit
Riskit
Qual_Rit
Industryit
B_Sizeit
Dualityit
80.67
0.97
0.31
0.77
1.49
0.46
0.76
0.18
0.13
0.16
3.16
0.30
1.73
0.55
0.60
3.40
0.35
0.57
555,325
17.73
2.23
3.48
0.87
0.96
0.09
0.40
5.27
0.11
87.00
1.00
0.33
44.38
0.89
0.29
35.00
0.00
0.00
204.00
3.00
1.00
1.00
0.50
1.18
0.33
0.00
0.00
5.00
1.00
0.00
0.00
0.42
0.12
0.00
0.00
2.00
0.67
3.00
0.94
1.00
6.00
2.00
0.67
1.30
0.38
0.00
0.00
6.00
1.00
3.00
1.95
1.00
13.00
38,175
17.46
1.84
2.13
1,552,852
2.37
2.80
6.93
567
13.25
1.33
5.47
8,003,883
22.80
18.76
32.81
0.66
2.90
0.02
7.35
5.00
2.02
3.00
12.00
For variables measured using a dichotomous scoring approach, the mean value is to be interpreted as the proportion of the
pooled-sample being awarded a score of one for the respective dichotomous measure. For variables measured using a
dichotomous approach, the median, standard deviation, minimum and maximum are not reported as such detail is primarily
irrelevant given the nature of a dichotomous measure. ARLit = Number of days from the end of financial year of firm i in period
t to the day the external auditor signs the audit report; #No_F_Expertiseit = Number of members of the audit committee of firm
i in time period t with the necessary expertise (based on educational, professional affiliations and/or a for-profit role) to be
financially qualified; Pro_F_Expertiseit = Proportion of the audit committee of firm i in time period t of members with the
necessary expertise (based on educational, professional affiliations and/or a for-profit role) to be financially qualified;
F_Expertiseit = Indicator variable that takes the value of one if at least one director of the audit committee of firm i in time period
t has necessary expertise (based on educational, professional affiliations and/or a for-profit role) to be financially qualified; and
zero otherwise; #No_Experienceit = Number of members of the audit committee of firm i in time period t that has prior audit
committee experience; Pro_Experienceit = Proportion of audit committee of firm i in time period t of members with prior audit
committee experience; Experienceit = Indicator variable that takes the value of one if at least one director of the audit committee
of firm i in time period t has prior audit committee experience; and zero otherwise; #No_Femaleit = Number of audit committee
members of firm i in time period t that are female; Pro_Femaleit = Proportion of audit committee of firm i in time period t who
are female; Femaleit = Indicator variable that takes the value of one if at least one director of the audit committee of firm i in time
period t is female; and zero otherwise; #No_Sizeit = Number of members of the audit committee of firm i in time period t;
Sizeit = Indicator variable that takes the value of one if the number of members of the audit committee of firm i in time period
t are greater than three; and zero otherwise; #No_Independenceit = Number of members of the audit committee of firm i in time
period t that are independent directors; Pro_Independenceit = Proportion of members of the audit committee of firm i in time
period t that are independent directors; Independenceit = Indicator variable that takes the value of one if the majority of the audit
committee of firm i in time period t are independent directors; and zero otherwise; #No_Meetingsit = Actual number of audit
committee meetings held by the audit committee of firm i during time period t; Meetingsit = Indicator variable that takes the
value of one if the audit committee of firm i in time period t meets at least four times or more a year (or if the board acts as a
surrogate audit committee then meets 10 times or more a year); and zero otherwise; Big4it = Indicator variable is scored one if
the external auditor appointed to verify the financial statements of firm i for the period t is a Big4 audit firm (i.e., KPMG,
Deloitte, Ernst and Young or PriceWaterhouseCoopers); and zero otherwise; LnAssetsit = Natural logarithm of the book value of
total assets of firm i at end of time period t; Leverageit = Total assets divided by total assets minus total liabilities of firm i at the
end of time period t; Growthit = Market-to-book ratio of firm i for time period t measured as a ratio of market value of equity
and book value of equity; Busyit = Indicator variable is scored one if the end of financial year for firm i for period t is June 30;
and zero otherwise; Riskit = Ratio of current liabilities to current assets of firm i for period t; Qual_Rit = Indicator variable is
scored one if the audit report for the financial statements of firm i for period t is qualified; and zero otherwise;
Industryit = Indicator variable is scored one if firm i is defined as being within an Industrials and/or Materials ASX GICS
business sector; and zero otherwise; B_Sizeit = Number of members on the board of directors of firm i at the end of period t; and
Dualityit = Indicator variable is scored one if the same individual holds the positions of chairperson of the Board and CEO for
firm i at the end of period t; and zero otherwise.
H2, H5 and H6. Inconsistent with expectations for H3 and

H4, gender diversity (i.e., Femaleit) and audit committee
size (i.e., Sizeit) are not significantly associated with audit
report lag (albeit on a univariate basis). With respect to
the six audit committee characteristics examined, Table 3
reveals significant correlations between all six variables

excepting audit committee Sizeit with Independenceit and
Meetingsit. Table 3 also indicates a number of significant
pairwise correlations involving control variables.
However, none of the highest pairwise correlations for
Int. J. Audit. : (2014)
1.00
0.09**
0.11**
0.08
0.09
0.14*
0.16*
0.07
0.26*
0.01
0.03
0.06
0.02
0.09
0.05
0.20*
0.04
(1)
(3)
0.28*
0.10**
1.00
0.11**
0.11**
0.24*
0.09**
0.28*
0.21*
0.05
0.02
0.09**
0.04
0.16*
0.06
0.25*
0.33*
(2)
0.22*
1.00
0.10**
0.15*
0.12**
0.26*
0.09**
0.23*
0.29*
0.03
0.01
0.11**
0.00
0.12*
0.06
0.31*
0.16*
0.22*
0.15*
0.11**
1.00
0.20*
0.27*
0.25*
0.10**
0.27*
0.02
0.01
0.28*
0.03
0.10**
0.00
0.27*
0.06
(4)
0.07
0.12**
0.11**
0.20*
1.00
0.00
0.07
0.00
0.16*
0.01
0.02
0.09**
0.07
0.06
0.15*
0.28*
0.03
(5)
0.42*
0.26*
0.24*
0.27*
0.00
1.00
0.23*
0.43*
0.45*
0.02
0.03
0.19*
0.09
0.23*
0.07
0.49*
0.19*
(6)
0.20*
0.09**
0.09**
0.25*
0.07
0.23*
1.00
0.19*
0.37*
0.02
0.08
0.22*
0.04
0.05
0.04
0.34*
0.01
(7)
0.31*
0.23*
0.28*
0.10**
0.00
0.43*
0.19*
1.00
0.44*
0.05
0.04
0.24*
0.01
0.18*
0.11**
0.41*
0.13*
(8)
0.52**
0.28**
0.20**
0.24**
0.13**
0.46**
0.34**
0.44**
1.00
0.01
0.04
0.28**
0.03
0.25**
0.10*
0.68**
0.11*
(9)
0.24*
0.10*
0.05
0.10**
0.04
0.14*
0.10**
0.17*
0.32*
1.00
0.58*
0.00
0.05
0.09**
0.03
0.00
0.03
(10)
0.07
0.04
0.01
0.00
0.01
0.13*
0.14*
0.06
0.15*
0.18*
1.0
0.04
0.03
0.04
0.01
0.08
0.06
(11)
0.22*
0.11**
0.09**
0.28*
0.09**
0.19*
0.22*
0.24*
0.25*
0.13*
0.08
1.00
0.02
0.06
0.09**
0.28*
0.01
1(2)
0.05
0.14*
0.00
0.08
0.04
0.13*
0.07
0.14*
0.22*
0.56*
0.02
0.18*
1.00
0.11**
0.09
0.04
0.02
(13)
0.28*
0.12*
0.16*
0.10**
0.06
0.23*
0.05
0.18*
0.26*
0.03
0.07
0.06
0.13*
1.00
0.04
0.22*
0.03
(14)
0.11**
0.06
0.07
0.01
0.15*
0.07
0.04
0.11*
0.12*
0.03
0.00
0.09**
0.06
0.04
1.00
0.04
0.03
(15)
0.47*
0.34*
0.28*
0.27*
0.29*
0.53*
0.31*
0.45*
0.66*
0.28*
0.03
0.24*
0.24*
0.25*
0.07
1.00
0.19*
(16)
0.16**
0.16**
0.33**
0.06
0.03
0.19**
0.01
0.13**
0.11*
0.03
0.09*
0.01
0.05
0.03
0.03
0.23**
1.00
(17)
**, * = Significant 1%, and 5% (two-tailed) respectively.

a
Numbers in the top row of the table correspond in sequential order with the variables listed in the left column of the table (i.e., (1) = ARLit, etc.); Pearson correlation values are shown
in the bottom left quadrant and Spearman correlation values are shown in the top right quadrant; ARLit = Number of days from the end of financial year of firm i in period t to the day
the external auditor signs the audit report; F_Expertiseit = Indicator variable that takes the value of one if at least one director of the audit committee of firm i in time period t has necessary
expertise (based on educational, professional affiliations and/or a for-profit role) to be financially qualified; and zero otherwise; Experienceit = Indicator variable that takes the value of one
if at least one director of the audit committee of firm i in time period t has prior audit committee experience; and zero otherwise; Femaleit = Indicator variable that takes the value of one
if at least one director of the audit committee of firm i in time period t is female; and zero otherwise; Sizeit = Indicator variable that takes the value of one if the number of members of the
audit committee of firm i in time period t are greater than three; and zero otherwise; Independenceit = Indicator variable that takes the value of one if the majority of the audit committee
of firm i in time period t are independent directors; and zero otherwise; Meetingsit = Indicator variable that takes the value of one if the audit committee of firm i in time period t meets
at least four times or more a year (or if the board acts as a surrogate audit committee then meets 10 times or more a year); and zero otherwise; Big4it = Indicator variable is scored one if
the external auditor appointed to verify the financial statements of firm i for the period t is a Big4 audit firm (i.e., KPMG, Deloitte, Ernst and Young or PriceWaterhouseCoopers); and zero
otherwise; LnAssetsit = Natural logarithm of the book value of total assets of firm i at end of time period t; Leverageit = Total assets divided by total assets minus total liabilities of firm i at
the end of time period t; Growthit = Market-to-book ratio of firm i for time period t measured as a ratio of market value of equity and book value of equity; Busyit = Indicator variable is
scored one if the end of financial year for firm i for period t is June 30; and zero otherwise; Riskit = Ratio of current liabilities to current assets of firm i for period t; Qual_Rit = Indicator
variable is scored one if the audit report for the financial statements of firm i for period t is qualified; and zero otherwise; Industryit = Indicator variable is scored one if firm i is defined
as being within an Industrials and/or Materials ASX GICS business sector; and zero otherwise; B_Sizeit = Number of members on the board of directors of firm i at the end of period t;
and Dualityit = Indicator variable is scored one if the same individual holds the positions of chairperson of the Board and CEO for firm i at the end of period t; and zero otherwise.
ARLit
F_Expertiseit
Experienceit
Femaleit
Sizeit
Independenceit
Meetingsit
Big4it
LnAssetsit
Leverageit
Growthit
Busyit
Riskit
Qual_Rit
Industryit
B_Sizeit
Dualityit
Variablesa
Table 3: Pearson and Spearman correlation analysis
10
N. Sultana et al.
Int. J. Audit. : (2014)
11
any variable examined exceed the critical threshold of

0.80 that would raise multicollinearity concerns (Hair
et al., 1995).
Main results
Regression analyses are reported in Table 4, Columns 13,
using regression models 13.6 In terms of individual audit
committee characteristics, coefficients on F_Expertiseit
and Experienceit are negative and statistically significant
in Table 4, Column 1 (t = 2.77, p < 0.01 and t = 1.98,
p < 0.05, respectively). Furthermore, the coefficient on
Independenceit is also negative and statistically significant
in Table 4, Column 1 (t = 1.99, p < 0.05). In contrast, the
coefficient on Femaleit is positive but insignificant. The
coefficients on Sizeit and Meetingsit are negative but
insignificant in Table 4, Column 1. In terms of
interpreting the reported audit committee coefficients in
Table 4, Column 1, as an example, if the firm has a
director on the audit committee with prior committee
experience, the audit report lag of that firm decreases by
almost 7 days (i.e., 6.98) holding other audit committee
characteristics constant. Similarly, if the firm has a

director on the audit committee who is independent, the
audit report lag of that firm decreases by almost 4 days
(i.e., 3.70), ceteris paribus. Overall, Table 4, Column 1,
results using Model 1 support H1, H2 and H5 but not H3,
H4 and H6.
Findings reported in Table 4, Column 1, also show that,
in general, the actual directionality of the coefficients for
respective control variables versus predicted directions
are mixed. For instance, the estimated coefficients on
Growthit and Riskit (B_Sizeit) are positive (negative) across
the regression results reported in Table 4, Column 1, as
predicted. In contrast, the estimated coefficients on Big4it
and Leverageit are positive contrary to the predicted
negative directionality. Aside from firm size, all the
coefficients on the control variables are insignificant from
zero. The significance of firm size supports prior
assertions that larger firms may be able to assert greater
pressure on audit firms to complete the required audit
work faster or have greater resources to enable the
completion of a swifter audit. Despite the insignificance
Table 4: Main results

Variables
Expected
sign
Intercept
F_Expertiseit
Experienceit
Femaleit
Sizeit
Independenceit
Meetingsit
Big4it
LnAssetsit
Leverageit
Growthit
Busyit
Riskit
Qual_Rit
B_Sizeit
Dualityit
Industryit
Year
Adjusted R2
F statistic (sig.)
Cox & Snell R2
Nagelkerke R2
Observations
?
?
+
+
+
+
+
Model 1
Coefficient
164.81
1.53
6.98
2.59
4.46
3.70
1.37
8.60
4.61
0.30
0.04
0.43
0.17
3.04
0.34
1.50
4.08
NR
Model 2
t-statistic
0.49
7.27***
494
7.87
2.77**
1.98*
0.440
0.954
1.99*
0.29
1.80
3.72***
0.35
0.11
0.07
0.25
0.41
0.23
0.23
1.00
NR
Coefficient
147.11
1.48
7.56
4.89
5.46
0.90
2.97
6.80
3.82
0.24
0.17
7.86
0.26
1.06
0.61
1.73
8.96
NR
Model 3
t-statistic
Coefficient
Wald p-
6.27
2.27**
1.84*
0.70
1.06
1.750
0.55
1.22
2.70**
0.25
0.44
1.054
0.33
0.45
0.37
0.22
1.89*
NR
0.66
0.35
0.43
0.26
0.01
0.05
0.33
0.20
0.13
0.02
0.03
0.01
0.11
0.82
0.11
0.14
0.07
NR
0.55
0.00**
0.06
0.39
0.97
0.03*
0.04*
0.46
0.05
0.67
0.21
0.97
0.35
0.06
0.17
0.72
0.75
NR
0.47
6.02***
395
0.29
0.39
395
***, **, *, = 0.1%, 1%, 5% and 10% significance with one-tailed significance level where direction of sign on coefficient
predicted, otherwise two-tailed. See Table 3 for dependent, independent and control variable definitions. Year = Series indicator
variables controlling time temporal differences of reporting periods for firm-year observations with firm i scored one if financial
data corresponds to time period t; otherwise scored zero. For Model 2, t1 = Each audit committee characteristic lagged by one
year. For Model 3, ARLit = Change in the audit report lag of a firm by one year. For models 13, 116 = coefficients on the
independent and control variables; 0 = intercept term; and it = error term.
Model 1 (Main results)
ARLit = 0 + 1F_Expertiseit + 2Experienceit + 3 Femaleit + 4Sizeit + 5 Independenceit + 6 Meetingsit + 7 Big 4 it + 8 LnAssetsit
+ 9 Leverageit + 10Growthit + 11Busyit + 12 Riskit + 13Qual_Rit + 14 Industryit + 15B_Sizeit + 16 Duality it +
Year +
(1)
it
Model 2 (Lagged audit committee characteristics results)

ARLit = 0 + 1F_Expertiseit 1 + 2Experienceit 1 + 3 Femaleit 1 + 4Sizeit 1 + 5 Independenceit 1 + 6 Meetingsit 1 + 7 Big 4 it + 8 LnAssetsit
+ 9 Leverageit + 10Growthit + 11Busyit + 12 Riskit + 13Qual_Rit + 14 Industry it + 15B_Sizeit + 16Duality it +
Year +
it
(2)
Model 3 (Lagged ARLit results)

ARLit = 0 + 1F_Expertiseit + 2Experienceit + 3 Femaleit + 4Sizeit + 5 Independenceit + 6 Meetingsit + 7 Big 4 it + 8 LnAssetsit
+ 9 Leverageit + 10Growthit + 11Busyit + 12 Riskit + 13Qual_Rit + 14 Industryit + 15B_Sizeit + 16 Duality it +

Year +
it
(3)
Int. J. Audit. : (2014)
12
of the majority of control variables, results from Model 1

in Table 4, Column 1, are robust for goodness-of-fit with
an explanatory power (i.e., adjusted R2) of 49%.
Findings reported in Table 4, Column 1, are based
on contemporaneous audit committee characteristics.
Some researchers argue that the influence of a corporate
governance mechanism or feature is not immediate
but influences future financial accounting events,
transactions and reports (Zahra & Pearce, 1989; Dalton
et al., 1999). Thus, tests are performed again using lagged
data for all six audit committee features (e.g.,
F_Expertiseit1 as opposed to F_Expertiseit) as predictors
of contemporaneous audit report lag. Results of the
regressions re-run using the lagged audit committee
data (i.e., Model 2) is reported in Table 4, Column 2.
Results reported in Table 4, Column 2, closely mirror
the main findings in Table 4, Column 1. Lagged
audit committee member financial expertise (i.e.,
F_Expertiseit1), lagged prior audit committee experience
(i.e., Experienceit1) and lagged audit committee
independence (i.e., Independenceit1) are all found to be
negative and significantly associated with the dependent
variable (i.e., ARLit). Lagged audit committee member
financial expertise (i.e., F_Expertiseit1) is the most
significant audit committee feature in reducing audit
report lag (see Table 4, Column 2, t = 2.27 respectively,
p < 0.01). Meanwhile, lagged gender diversity (i.e.,
Femaleit1), size (i.e., Sizeit1) and diligence (i.e., Meetingsit1)
are not significantly associated with contemporaneous
audit report lag.
The influence of contemporaneous audit committee
features on the change in audit report lag is also
examined. Specifically, a logistic regression was
performed to determine if the six specific audit
committee composition characteristics were associated
with a faster audit report issuance in the current period
relative to the prior period. Results of the logistic
regression performed (i.e., Model 3) are shown in Table 4,
Column 3. Again, findings presented in Table 4, Column
3, are highly similar to those presented in Table 4,
Columns 1 and 2. The presence on the audit committee of
a member with financial expertise (i.e., F_Expertiseit),
prior audit committee experience (i.e., Experienceit) and
independence (i.e., Independenceit) are shown to be the
main factors driving the negative association between
audit committee characteristics and change in audit
report lag. Audit committee gender and size (i.e., Femaleit
and Sizeit) are found to be non-significant predictors of
the change in audit report lag from time period t 1 to t.
However, more frequent audit committee meetings (i.e.,
Meetingsit) are less likely to be associated with a greater
audit report lag from time period t 1 to t than less
frequent audit committee meetings (see Table 4, Column
6; Wald p < 0.05).
Sensitivity analysis
Extensive sensitivity analysis was undertaken to validate
the main results. For instance, all main regressions were
re-run using alternative proxy measures for the
dependent, independent and control variables. In the case
of the dependent variable, following Bamber et al. (1993),
abnormal audit report lag is calculated as the difference
between the firms audit report lag and the firms median
audit report lag, where the latter median is calculated
over the observation window.7 Alternative variables
measures for the six individual audit committee
N. Sultana et al.
characteristics included: (1) number of members with

financial expertise; (2) number of members with audit
committee experience; (3) number of women on the
audit committee; (4) number of members on the audit
committee; (5) number of independent members; and (6)
number of audit committee meetings per year. Finally,
in respect to control variables, firm size was measured
using total sales, the quick ratio for leverage and auditor
industry specialisation8 for auditor quality. Regression
analysis performed again using alternative proxy
measures for the dependent, independent and control
variables yield findings highly consistent with the results
reported in Table 4.9 The consistency in findings despite
using alternative measures reinforces conclusions
regarding the testable hypotheses as highlighted by the
main results.
A further robustness test was to analyse the potential
lagged effect between the audit committee features
examined in this study and audit report lag. Specifically, it
is possible that most of the interactions between the audit
committee and the external auditor occur after the yearend when the auditor starts and finishes the audit and, as
such, it may not be appropriate to examine the relationship
between audit committee characteristics and audit report
lag in the same period. Therefore, we re-ran our regression
results by examining audit committee variables in the time
period t + 1 to account for the possibility that although
audit report lag may occur in a particular time period, as
audit committee and external auditor interactions
frequently also occur after the year-end, audit committee
variables should also be examined in the subsequent
period (i.e., t + 1 or, for example, regressing 2009 audit
committee characteristics against 2008 audit report lag).
Results remain significantly similar to the main results
reported, suggesting that such lagged audit committee
characteristics did not change the timeliness of financial
reporting by Australian firms.
To control for the effect of the issuance of an emphasis
of matter and other matter opinion, regressions are
re-run using a dummy variable that equals one where
such an opinion was issued (43 such firm-year
observations out of a total of 494 firm-year observations);
and zero otherwise. Results remain significantly similar
to the main results reported suggesting that the issuance
of an emphasis of matter and other matter opinion did
not change the timeliness of financial reporting by
Australian firms. This is unsurprising given that, in the
main results, the issuance of a qualified opinion by the
auditor was also not significant in all regressions run in
Table 4.
As an additional check, extra tests were performed
to determine if main findings persist after allowing
for the endogenous relationship between corporate
governance and audit report lag. Consistent with Frankel,
Kothari and Weber (2006) and Wooldridge (2008), a
two-stage least squares (2SLS) approach is adopted to
control for potential endogeneity problems. The 2SLS
requires the identification and use of Z instruments
(exogenous variables) in the first stage which have an
impact on audit report lag only through the six audit
committee characteristics examined without having any
direct influence on audit report lag (Wooldridge, 2010).
In the corporate governance literature, it is not feasible
to get a perfect exogenous Z instrument (Hentschel &
Kothari, 2001; Wooldridge, 2010; Brown, Beekes &
Verhoeven, 2011). Therefore, Hentschel and Kothari
(2001) recommend that a reasonably crude measure of
Int. J. Audit. : (2014)
the endogenous variable can, nevertheless, be used as

an instrumental variable because it is likely to capture
the level of the variable, but not the endogenously
determined variation around those levels. Therefore,
consistent with Krishnan and Visvanathan (2008), this
study uses a 3-year average of (i.e., year t 1 to t 3)
specific governance and firm-specific characteristics (i.e.,
total assets, leverage, current ratio, market-to-book ratio,
industry, return-on-equity, return-on-assets, board size,
board independence, board financial expertise, board
meetings, CEO duality and Big4 auditor) as instrumental
variables. This is because, although the year t values of
specific governance and firm-specific characteristics are
likely to affect audit report lag thereby causing
endogeneity problems, the average values of year t 1 to
year t 3 are less likely to be endogenous to the audit
report lag in year t (Greene, 1999).
The 2SLS regressions are run for all models based
on all six (i.e., F_Expertiseit, Experienceit, Femaleit, Sizeit,
Independenceit and Meetingsit) characteristics of audit
committees. In the first stage, it is estimated whether
each of the audit committee characteristics is associated
with
selected
governance
and
firm-specific
characteristics. Then, the predicted values (i.e.,
P_Experienceit,
P_Femaleit,
P_Sizeit,
P_F_Expertiseit,
P_Independenceit and P_Meetingsit) are obtained for each
type of audit committee characteristic. Subsequently, the
predicted values of the audit committee characteristics
from the first stage are then regressed against audit report
lag in the second stage of the 2SLS. Results of the second
stage test, after allowing for endogeneity, remain mostly
comparable to the results reported in Table 4. Also,
in order to determine if our models suffer from
heteroskedasticity, the DurbinWuHausman test was
also employed to determine if there is a serial correlation
of the residuals. Results indicate that the residuals behave
randomly and that our models fit the data well and
consequently do not suffer from model misspecification.
Finally, the time period (i.e. 20042008) of our study
transcends the International Financial Reporting System
(IFRS) adoption by Australian firms in 2005. Therefore,
to control for the potential effect of IFRS adoption on
the association between the six audit committee
characteristics examined and audit report lag, another
sensitivity test was performed to determine whether
firms in the pre-IFRS period were timelier in their
financial reporting than in the post-IFRS period. As such,
the data are partitioned between pre-IFRS (20042005)
and post-IFRS (20062008) periods and regressions
re-run. Regressions are also re-run using IFRS as an
indicator variable equalling one for fiscal years 20062008
and zero for fiscal years 20042005. Results remain
significantly similar to the main results reported,
suggesting that IFRS adoption did not change the
timeliness of financial reporting by Australian firms.
Overall, the sensitivity tests provide further support to
the main findings reported in Table 4 having yielded
similar results both in terms of directionality and
significance.
CONCLUSION
This study examines whether audit committee
compositional features are associated with the timeliness
of financial reporting (i.e., audit report lag) by Australian
publicly listed firms. An examination of audit report
lag determinants is essential if the financial performance
13
of firms is to be released in as little time as possible to

a highly reactionary news-driven society demanding
reliable information as quickly as possible. Analyses
focus on six audit committee characteristics: financial
expertise, prior audit committee experience, gender, size,
independence and diligence. The tenets of both agency
theory and resource dependency theory are drawn upon
in the development of testable hypotheses.
Based on analysis using 494 firm-year observations of
data obtained from ASX publicly listed firms from 2004 to
2008, this study finds evidence of a significant negative
association between an audit committee members
financial expertise, prior audit committee experience and
member independence with reduced audit report lag.
Audit committee gender, size and meeting frequency do
not appear to be significant determinants of audit report
lag. Main findings are found to be robust to alternative
measures of audit report lag, the six audit committee
predictor variables, control variables, industry effects
and endogeneity bias. Overall, results are partially
consistent with, and support, theoretical expectations
of agency and resource dependency theories. Findings
suggest alternative theoretical explanations may be
necessary in defining linkages between the gender and
size of the audit committee and audit report lag.
Overall, this study makes several key contributions.
Findings highlight to regulators and reform advocates
the impact of legislating specific composition
requirements on audit committees from an information
timeliness perspective and this consequently has
substantial resourcing implications for the management
of firms. Results lend credence to the view that effective
corporate governance mechanisms increase the
timeliness and, therefore, the quality of financial
reporting by firms. Our analysis also fills a gap in the
extant literature where existing empirical evidence of
how the audit committee influences audit report lag is
scant. This is particularly important as regulators and
reform advocates continue to promote the importance of
the audit committee in improving the quality of financial
reporting, including its timeliness. This study also
introduces improvements to the prior literature by
examining six key audit committee features in aggregate
found to most consistently affect audit report lag. Finally,
results enhance an understanding of audit report lag
determinants and raise implications for the potential
introduction of regulations governing such factors as
prior audit committee experience.
Results are subject to limitations. Whilst control
variables included in the regression models are all
validated by prior archival research, there may exist other
variables impacting audit report lag excluded from our
analysis. Future research can examine the impact of other
corporate governance mechanisms thought to potentially
impact audit report lag such as internal auditors. In
addition, the association between audit report lag and
other financial measures such as earnings management
and cost of equity/debt can also be undertaken.
ACKNOWLEDGEMENTS
The authors gratefully acknowledge the valuable
comments of two anonymous reviewers. The authors
also acknowledge the many helpful suggestions from
both the discussant and participants at the Accounting
& Finance Association of Australia and New Zealand
2013 conference and seminar participants at both the
Int. J. Audit. : (2014)
N. Sultana et al.
14
Macquarie University Accounting and Corporate

Governance research seminar series 2014 and the Curtin
School of Accounting research seminar series 2014.
NOTES
1. The importance of audit committee members with
financial expertise is also underscored by the
Sarbanes-Oxley Act (SOX) 2002 passed by the US
Congress mandating the disclosure by firms whether
their audit committee includes a financial expert
(Securities and Exchange Commission, 1999). The
primary objective of SOX 2002 was to restore
credibility to the US financial reporting system already
tarnished by a number of well-publicised accounting
scandals. As such, it is expected that, pursuant to SOX
2002 requirements, the presence of financial experts on
an audit committee will increase its effectiveness
leading to better quality financial reporting outcomes
(Sultana & Van der Zahn, 2013), including timeliness of
financial reporting.
2. See Janis (1972) for a further discussion on the concept
of groupthink.
3. The longitudinal study covers a five calendar year
period (1 January 2004 and 31 December 2008). The
five-year period is selected to minimise any significant
extraneous influences on findings as a result of fallout
from the Dot.Com bubble, the introduction of new
International Financial Reporting Standards (IFRS)
and excessive volatility due to the 2009 Global
Financial Crisis. The period for the broader
longitudinal study is also selected as it transcends the
introduction of key corporate governance reforms in
Australia (i.e., CLERP 9 and ASX CGC 2003). Findings
from this study, therefore, may indicate whether
recommendations related to audit committees in
CLERP 9 and ASX CGC 2003 impact the audit
committee effectiveness/audit report lag linkage.
4. Data for the variables examined in this study were
hand collected from the 20042008 financial year
annual reports of each selected firm. Annual reports
were obtained from the Annual Reports Collection
(Connect 4 Pty Ltd), FinAnalysis/DatAnalysis Aspect
Huntleys Financial Database.
5. In this instance, the higher the denominator, the
greater the risk to the operations of the firm.
6. Our study uses panel data over the period 20042008,
creating a serial correlation problem among multiple
year observations. Consistent with past literature
(Knapp, 1987; Beekes, Pope & Young, 2004), a fixed
effects model is therefore used to control for year and
firm-specific differences not captured by the panel
data. All regressions include both year and firm fixed
effects to capture a possible trend towards timelines of
financial reporting over time. All reported results are
thus based on HuberWhite robust standard errors
clustered both at the year and firm level.
7. Furthermore, we undertook additional analysis by
partitioning our dataset between firms that had their
audit reports signed within 90 days of year-end and
those that exceeded this threshold (the latter being 158
firm-year observations out of a total of 494 firm-year
observations). We then re-ran our regression analysis
and found no significant variation to our main results.
8. Given that auditor industry specialisation and Big4
auditor variables are highly correlated, as all the Big4
auditors are also specialists in a number of industries,
our main analysis only includes the Big4 variable with

the auditor specialisation variable used in our
sensitivity analysis.
9. Given that our main results report the greatest
association between reduced audit report lag and
audit committee financial expertise (see Table 4,
p-value < 0.01), we sought to further check the
robustness of this result by re-running our main
results using a percentage of audit committee
members with financial expertise variable. Regression
analysis using this alternative audit committee
financial expertise measure yields results entirely
consistent with our main Table 4 results. We thank an
anonymous reviewer for this suggestion.
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AUTHOR PROFILES
Nigar Sultana (n.sultana@curtin.edu.au) is an
emerging researcher post-PhD and has research interests
in earnings quality, corporate governance, audit quality
and in capital markets research.
Harjinder Singh (h.singh@curtin.edu.au) is also an
emerging researcher post-PhD and has research interests
in audit fees, audit quality, corporate governance, internal
audit and initial public offering underpricing.
J-L. W. Mitchell Van der Zahn was a Professor of
Accounting with research interests in auditing, financial
reporting quality and capital markets at Curtin
University and is now an investment banker.
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Int. J. Audit. : (2014)

Audit Committee Characteristics and Audit Report Lag

2014 John Wiley & Sons Ltd

Schwartz & Soo, 1996; Blankley, Hurtt & MacGregor,

(based on a comprehensive literature review) that

an audit committee from an information timeliness

Audit Committee Characteristics and Audit Report Lag

therefore ensure that all material financial reporting

Scholars, corporate governance reformists and

committee effectiveness (McMullen & Raghunandan,

management disagreements, thereby ultimately reducing

Audit committee prior experience

The primary theoretical perspective underlying the

Agency and resource dependency theory arguments

Audit committee characteristics and audit

Agency and resource dependency theories diverge on

Audit committee financial expertise

H1: There is a negative association between audit

H2: There is a negative association between audit

Audit committee gender

Int. J. Audit. : (2014)

Audit Committee Characteristics and Audit Report Lag

mechanisms less effective and efficient (Powell & Anisc,

Audit committee size

H4: There is a significant association between audit

Audit committee independence

Audit committee diligence

Measurement of all variables

Table 1: Sample selection and industry breakdown

Final useable sample

Panel B: Sample firm break down by industry

Experienceit takes the value of one if at least one director of

Audit Committee Characteristics and Audit Report Lag

negative association between audit reporting lag and firm

Statistical tests and models

ARLit = 0 + 1F_Expertiseit + 2Experienceit + 3 Femaleit

ARLit = 0 + 1F_Expertiseit 1 + 2Experienceit 1

ARLit = 0 + 1F_Expertiseit + 2Experienceit + 3 Femaleit

Industryit = Indicator variable is scored one if firm i is

Descriptive statistics and correlations

as the US, Canada, New Zealand and the UK (Ashton

Audit Committee Characteristics and Audit Report Lag

Table 2: Descriptive statistics

H2, H5 and H6. Inconsistent with expectations for H3 and

reveals significant correlations between all six variables

2014 John Wiley & Sons Ltd

**, * = Significant 1%, and 5% (two-tailed) respectively.

Table 3: Pearson and Spearman correlation analysis

Int. J. Audit. : (2014)

Audit Committee Characteristics and Audit Report Lag

any variable examined exceed the critical threshold of

characteristics constant. Similarly, if the firm has a

Table 4: Main results

+ 9 Leverageit + 10Growthit + 11Busyit + 12 Riskit + 13Qual_Rit + 14 Industryit + 15B_Sizeit + 16 Duality it +

Model 2 (Lagged audit committee characteristics results)

+ 9 Leverageit + 10Growthit + 11Busyit + 12 Riskit + 13Qual_Rit + 14 Industry it + 15B_Sizeit + 16Duality it +

Model 3 (Lagged ARLit results)

+ 9 Leverageit + 10Growthit + 11Busyit + 12 Riskit + 13Qual_Rit + 14 Industryit + 15B_Sizeit + 16 Duality it +

Int. J. Audit. : (2014)

of the majority of control variables, results from Model 1

characteristics included: (1) number of members with

Audit Committee Characteristics and Audit Report Lag

the endogenous variable can, nevertheless, be used as