A Broader Perspective on the Connection Between Audit Committee and Audit Report Lag

Abstract

The article investigates the relationship between audit committee composition and audit report lag in the context of a developed country where the governance environment is well-established. The study also tests the factors that influence the relation between audit committee composition and audit report lag. A sample of FTSE 350 firms over a 9-year period prior to COVID-19 was tested. We used Thomson Reuters to collect firms’ governance and financial data, and we manually collected the audit lag data. The results show that audit committee independence reduces the audit report lag only if the board is highly independent and if the firm has relatively high profitability. Contrary to our hypothesis, audit committee financial experts positively influence the timeliness of audit report lag. Additionally, when firms are characterized by low board independence or high profitability, the frequency of audit committee meetings leads to a larger audit report lag. The positive association between audit committee meetings and audit report lag proposes that audit committees of relatively high profitable firms and low board independence have higher concerns regarding earnings management and financial statement manipulation, leading to demand for more audit effort for a higher assurance level. The study can be used as a tool that highlights the factors leading to the extended audit lag and also provides a broader understanding of the influence of the audit committee structure on audit report lag under different board independence and firm profitability levels.