Audit committee effectiveness and timeliness of reporting: Indonesian evidence

Abstract

Purpose -The purpose of this paper is to examine the association between audit committee effectiveness and timeliness of reporting. Specifically, the paper investigates whether there is any relationship between effectiveness of an audit committee and submission of audited financial statements to the Indonesian Stock Exchange (IDX). Design/methodology/approach -Audit committee effectiveness is measured by an index based on the framework developed by DeZoort et al. Timeliness of reporting is defined as the number of days that elapses between a company's financial year-end and the day on which its audited financial statement is received by the IDX. The sample comprises 211 non-financial Indonesian listed companies. Multivariate regression analysis was performed to analyse the relationship between audit committee effectiveness and timeliness of reporting. Findings -The findings show that timeliness of reporting is associated with audit committee effectiveness. This result suggests that audit committee effectiveness is likely to reduce the financial reporting lead time, i.e. the time taken by companies to publicly release audited financial statements to the stock exchange.Research limitations/implications -The audit committee effectiveness index employed in this study was based on DeZoort et al.'s framework. There could be other aspects of audit committee effectiveness such as the organizational context or multiple-directorship which had not been addressed in the present study. Thus, future research may consider and examine these other aspects in developing a more comprehensive index. Practical implications -The findings suggest that audit committee effectiveness is a significant factor ensuring timely submission of audited financial statements. Thus, companies perhaps can re-look into how to further improve audit committee effectiveness in order to enhance timeliness of financial reporting. Originality/value -Unlike the majority of prior studies which investigated the association between the presence/absence of audit committee and timeliness of reporting, this study is one of few which examined the relationship between effectiveness of audit committee and timeliness of reporting in an emerging country.

Influencing Factors:The Timeliness of Financial Reporting Submissions

“…It can be based on the total assets value, total sales, market capitalization, number of workers, and so on (Niresh and Velnampy, 2014). The greater the assets of a company, the greater is the invested capital, the greater the total sales of a company, the more money will be turned-over and the larger the market capitalization and the greater the company will be known by the public (Ika and Ghazali, 2012).…”

Audit Committee Effectiveness and Company Performance: Evidence from Jordan

“…Previous studies reported that the effectiveness of audit committees is to some extent dependent on the characteristics of the committee, such as its size (Dellaportas et al 2012;Herdjiono and Sari 2017). To be effective in controlling and monitoring managers' behaviour, the audit committee must have enough members to carry out its responsibilities (Vicknair et al 1993), with sufficient resources (Kalbers and Fogarty 1993).…”

“…Based on the premises of the agency theory, the conflict between managers and shareholders often motivates managers to act in their own best interest and against those of shareholders, especially when opportunistic behaviour is involved in the process (Jensen and Meckling 1976;Dellaportas et al 2012). Therefore, in an environment without monitoring tools and effective market regulations, managers are more likely to deviate from protecting the shareholders' interests (Turley and Zaman 2004;Al-Matari et al 2012).…”

“…Abdel-Fattah 2008; Dellaportas et al 2012;Kallamu and Saat 2015;Alqatamin et al 2017). Gujarati (2008) and Murtagh and Heck (2012) suggest that 80% is considered the beginning of multicollinearity problem which may harm the regression analysis.…”

IFRS Adoption and Audit Delay: The Role of Shareholders in the Audit Committee

“…Arguably, IFRS' stresses fair value accounting as required by most IFRS standards (Ahmed, Chalmers, & Khlif, 2013). The adoption is expected to lower the audit delay and provide a readable financial statement to stakeholders within the time span regulated (Oussii & Boulila Taktak, 2018), this is because financial reporting timeliness has for long been acknowledged as one of the distinct feature of financial reporting (Sultana, Singh, der Zhan & Mitchell, 2015, Ika & Ghazali, 2012Abbott, Parker & Peters, 2012).…”