The Effect of Audit Committee’s Characteristics on the Audit Report Timeliness: Empirical Evidence from the UK
Date
2021-09Author
Elgharbawy, Adel HassanAladwey, Laila Mohamed Alshawdfy
العدوي، ليلى محمد الشوادفي
الغرباوي، عادل حسن
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This paper examines the association between the attributes of the audit committees (ACs)
and the audit report timeliness for UK FTSE350 companies over the period 2017 to 2019. In
particular, we investigate the impact of AC’s attributes, namely, independence, gender,
financial expertise, activity and size; as prescribed by the UK Corporate Governance code
(2018) on the audit report lag (ARL). To this end, we employ the OLS regression with robust
standard errors based on 633 firm-year observations. Our results indicate that AC’s
independence and meeting frequency are associated with a reduction in audit report delay.
However, the results also indicate that AC’s gender, financial expertise and size do not
influence the audit report timeliness. More interestingly, the UK listed companies, which
issue their annual reports during the busy reporting period tend to have longer ARL. In
contrast, the high audit fees are significantly associated with shorter ARL. Contrary to the
propositions of the critical mass theory, additional analysis reveals that high representation
of female directors in ACs would deter the financial reporting timeliness, since it is
associated with longer ARL. Our results are also robust for alternate measures for ACs’
attributes of size, activity and expertise. The findings of our study highlight the importance
of ACs, as an internal governance mechanism, in enhancing the timeliness and the quality of
companies’ financial reporting. It accentuates the role of independent director, as well as
the ACs’ meeting, in alleviating any disputes and settling any issue that might hinder the
external auditors to release timelier audit report. Our findings also direct the attention of the
UK regulators to the importance of providing a clearer definition of the financial expertise
required by ACs’ members. In addition, our results also direct the attention of the UK
companies to the importance of choosing the female directors’ members in ACs based on
their qualification and expertise, rather than their mere representation to satisfy the UK CG
recommendation.
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