An analysis of audit report lags in Maltese companies

Abstract

This paper investigates the audit report lag (ARL) in statutory audits. It tests a number of factors that may influence the ARL in 375 Maltese companies in the years 2006-2010. A mixed-methods research methodology is adopted, whereby company financial statements over the period are examined. Extracted information, including the ARL, is subjected to statistical tests on the relationship between such ARL and six independent variables: company size, audit firm size, audit opinion, profitability, the presence of an extraordinary item, and type of industry. This is then complemented by the analysis of 12 semistructured interviews with statutory auditors. The ARL is found to be shorter in large companies, when profit figures are positive, in financial service companies, and when the audit firms are large. A longer ARL is found when the audit report is qualified and in the absence of an extraordinary item. Interviewee response is generally consistent with these results except for the relationship to ARL of the absence of an extraordinary item. ARL is also seen to vary according to the users’ perceptions of the relevance and usefulness of the financial statements. Besides confirming or otherwise the relationship of the ARL to the stated major factors, the study also brings to light the need for cooperation by both audit firms and client companies to reduce such ARL.