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Intro 11

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5 views5 pages

Intro 11

Uploaded by

dinaaagamalmansourahmed
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Introduction

In the past decade, many financial scandals have emerged due to various
fraudulent behaviors from diverse directions, this pushed the U.S congress to
pass legislation in 2002 called Sarbanes Oxley Act (SOX), and this act
highlighted the importance of assurance and consulting services provided by
different auditing firms worldwide. Assurance services provided by external
auditor includes. One of the main results of conducting an audit by an
external party is reaching an opinion about the fairness of representation of
the financial statements of many organizations.( Edward Thurlow (1731–
1806)

On the other hand, timely corporate financial reporting is an essential


ingredient for a well-functioning capital market Undue delay in releasing
financial statements increases uncertainty associated with investment
decisions (Ashton et al., 1987). Timely reporting in emerging markets, as
Egypt, is very crucial, since information in these markets is relatively limited
and has a longer time lag. Timely reporting will enhance decision making and
reduce information asymmetry in these markets. Hence, exploring the
determinants of timely reporting would enhance the regulators of emerging
capital markets in formulating new policies to improve the allocation
efficiency of their markets

One of the more interesting questions in auditing research involves how to


interpret the length of time it takes to complete an audit. Any professional
task, done well, will take time to complete, but we often do not know how
long a high-quality job should take, or at what point the length of time begins
to signal a problem, since there are so many variables that can affect the
audit report lag (the length of time between the end of the client’s fiscal year
and the audit report date) including the complexity of the audit, the nature of
the client, and the expertise of the auditor (Ashton et al., 1989; Bamber et al.,
1993; Knechel and Payne, 2001; Behn et al., 2006). In our recent study The
Relationship between Audit Report Lags and Future company value. We will
investigate whether unusual delays in the audit during a given year, give the
investor a sign that company is passing through some financial problem or
there is fraud that will negatively affect the company is image (Chambers and
Penman, 1984)

Important of audit report lag(ARL), in various studies have been conducted in


an attempt to determine factors effect ARl. (Bamberetal, 1993), The extent of
audit work is influenced by auditor business risk, audit complexity and other
work-related factors including extraordinary items, net losses and qualified
audit opinions.

Tool CPA firm can use to build good relationship with client to avoid
unnecessary time in understand the client operation and environment

Research Problem
In Egypt, the timely realized audit report maybe not very important for the
audit firm, also any increases in the audit length may affect the company
reputation and effect it market value, investors and creditors need this report
to take decision the delay on the audit report may have negative impact on
the external user’s decision ,that may cause unnecessary losses to the
company .

More than ever before, today’s investors turn to accountants for timely
financial information. As a result, auditors are under increasing pressure to
complete an opinion about company’s financial statements, Long audit lag
can be indicator for the investors or any external user for bad news or that
the financial statement is not fairly presented or foundation of any material
fraud or error, therefore, The process of auditing needs to be short with no
delays on the time to avoid any effect of on the company

Accordingly, this research will attempt to the following questions: what is


meant by ARL? What is the importance of external auditing profession? What
are the factors that can affect ARL? Does ARL significantly influence
company’s market value? What is the mail determinants of company’s market
value?

Research Objective
This research aims to examine the impact of audit report lag on the
company’s market value .This will be done through an extensive review of
literature about ARL and company’s market value.

This paper will highlight the of external auditing profession in the Egyptians
environment ,the main determinants of ARL will be discussed , the factors
affecting company’s market value will be elaborated and finally, the impact of
ARL on company market value will be investigated

Research Importance and Motivation


The need of audit report, no investor no creditor no board of director
whether no external user can take decision without take look on the audit
report, this report identify whether the information in this financial statement
are fairly presented or not, is the company have any material misstatement
that may affect the resarcher decision, and also if the managers and
employee try to hide some facts like the probability of bank ruby.

The important of this research stems from the increase need of audit opinion
in the company, investors and external users need this information to take
decisions, the length of audit become itself a sign for investors and creditors
of bad position of financial situation of the company (Trung Pham and Mai
Dao, 2014)

In Egypt, the time is not very important to the auditors so this research will
motivate the auditors to understand the importance of audit report lag and
how to minimize this lag throw understanding the factors affects the lag and
understand the importance of building good client relationship .
Also even if the CPA firm not specializing in one industry, how can the
auditors use tools to keep length of audit short and without effect on the
company market values and avoid skepticism from external users.

Even more, how can the auditors put good audit plan to avoid all
misunderstanding with the client and decreases the audit length needed for
each phase in the plan to finish it correctly

In addition, the significance of identifying the effect of audit report lag on


market value by emerging and developing capital markets where the annual
reports are the only reliable source of information available to investors,
creditors, banks, government .

Research Contribution
The object of this research to increases the knowledge and awareness of the
important of the audit lag and how can external auditors keep the length of
audit at reasonable length without effect on the audit quality, and how could
the auditors build good plan for and understand each phase needed time to
get it done and accomplish their tasks

And build the concept of specialization, bemuse firm are better in selecting
industry-specialized auditors so the auditor delay in the first few years of
audit process will be minimized, our study also suggests that public
accounting firms can differentiate themselves in the market by investing
financial, technological and personnel resources to build up and/or enhance
their expertise. Because specialization can mitigate the adverse effect of short
audit tenure on ARL (PCAOB, 2011)
Research Plan
To address the research problem, answer the research questions and achieve
research objectives, this research will be organized to include five chapters:
chapter One presents the general framework of the research which includes
the research introduction, and its objective, importance and motivations,
problem, contribution, limitations and plan. Chapter Two is designated to
theory development and hypotheses formulation. It includes an investigation
and evaluation of extant research related to audit report lag and how it is
expected to influence company's market value, in order to build a theoretical
foundation necessary to develop the research hypotheses. Chapter Three
includes a description of the research methodology used and the
experimental design; whereas Chapter Four displays the statistical analysis
and interpretations of the results. Finally, Chapter Five presents the
conclusions of the study, implications and recommendations for future
research.

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