CORPORATE GOVERNANCE AND AUDIT REPORT TIMELINESS

CHAPTER ONE

INTRODUCTION

1. 1. BACKGROUND OF THE STUDY

Audit reports timeliness generally refers to the length of time from a company’s financial year-end to the date of the auditor’s report and thus it is usually measured as the number of days between a firm’s fiscal year-end and the report date (Ashton, Willingham, and Elliot, 1987). Audit report timeliness has been viewed and addressed from different angles; while some may prefer to look at audit time lag using audit report lag, others have used management lag, total lag and also audit time lag. The auditing literature has recognized the importance of audit delay research because audit delays affect the timeliness with which financial and audit information are publicly disclosed. Timeliness of audit reports in relation to financial reporting, is an important qualitative characteristics of accounting information and influences whether information is useful to those who read financial statements or not. The timeliness of audited corporate annual financial reports is considered to be a crucial and an essential factor affecting the usefulness of information made available to various users. According to Soltani (2002), the accounting profession has recognized that the timeliness of reports is a significant characteristic of financial accounting information for the users of accounting information, and for regulatory and professional agencies. One of the crucial objectives of corporate audit reporting is to provide information that will assist external users in decision making. This information, however, is required to be made available within a short period of time from the end of the reported period; otherwise, it loses some of its economic value. Therefore, reducing audit delays and improving timeliness of audit reports is recognized by the accounting profession, users of accounting information, and regulatory and professional agencies as an important characteristic of financial accounting information. Timeliness requires that information be made available to users as quickly as possible and before it loses its relevance for decision making. It is recognized in the literature that the shorter the time between a company's financial year-end to the date of the auditor's report, the more benefit can be obtained from the audited financial statements (Abdulla, 1996). However, it is not acceptable to publish financial statements unless a certified public accountant (external auditor) first audits them. The timeliness of Audit reports is a critical factor in emerging and newly developed capital markets where the audited financial statements in the annual report are the only reliable source of information available to investors. In Addition, Owusu-Ansah (2000) argues that timely reporting is an important device to mitigate insider trading, leaks and rumors in emerging capital markets. Timeliness can also be viewed as a way of reducing information asymmetry and reducing the opportunity to spread rumors about the companies' financial health and performance. Timely presentation of financial statements affects the decision making process of investors and the corporate governance of organisations, as lack of timely information will result in the poor performance and development of business organisations. Consequently, the focus of this study is to examine the effect of corporate governance determinants on audit report lag using selected quoted companies in Nigeria.

1. 1. STATEMENT OF THE GENERAL PROBLEM

Several studies on the timeliness of corporate audit reporting and/or audit delay have been undertaken in a number of countries including Nigeria. Most of these researches were conducted in the United States (Kinney &McDaniel, 1993; Han & Wild, 1997, Krishnan, 2005). Several studies have also been carried out in Australia (Davis & Whittred, 2008; Whittred, 2006; Simnett, Aitken, Choo, & Firth, 2005), Canada (Newton & Ashton,1999), New Zealand (Carslaw & Kaplan, 1991; Courtis, 2006), Bahrain (Abdulla,1996), France (Soltani, 2002), China (Wang & Song, 2006), Greece (Owusu-Ansah & Leventis, 2006), the UK (Abdelsalam & Street, 2007), Europe, and the Far East (Conover, Miller, & Szakmary, 2007). Interestingly the area has not received adequate research evidence in Nigeria especially when placed side by side with what is obtainable in several developed and emerging markets and this has necessitated this research. Findings from Nigeria being ob of the biggest markets in Nigeria are of incremental benefits to extant literature arising from the peculiarity of the audit market and the nature of the corporate environment. Secondly, In Nigeria, by provisions of CAMA (1990) as amended the maximum time within which companies are expected to complete and make public their financial report is three months. However, most companies present their reports much later than this date (Modugu, Eragbe and Ikhatua 2012).

1. 1. AIMS AND OBJECTIVES OF THE STUDY

The major aim of the study of the study is to examine corporate governance and audit report timeliness. other specific objectives of the study include;

1. To examine the level of audit report timeliness in Nigeria.
2. To determine the importance of audit report in Nigeria.
3. To establish the relationship between audit report timeliness and corporate governance in Nigeria.
4. To outline the corporate governance attributes in Nigeria.

1.4. RESEARCH QUESTIONS

1. What is the relationship between audit report timeliness and corporate governance in Nigeria?

2. What is the level of audit report timeliness in Nigeria?