Research On The Impact Of Audit Firm Industry Specialization On The Audit Report Lag

This paper investigates whether the audit firm specialization have a significant impact on the audit report lag and then further distinguishes the impact of industry specialization on audit delay in cases of different audit tenure. Annual report disclosure is an important source for investors to have access to information. By comparing the date of annual report with that of audit report, you can find these two dates are almost the same. The audit report, as an important part of the annual report, the audit report’s timeliness will directly determine and influence the timeliness of annual report. Therefore, the scholars are increasingly paying attention to the research into the audit delay, many of whom have begun to explore the factors which impact audit delay. Previous studies have shown that factors causing the lag of audit report mainly include firm characteristics (such as the size of the company; ownership concentration; profitability; internal control and audit opinions) and accounting firm characteristics (such as the size of audit firm and audit firm replacement).Audit firm industry specialization, as one of the characteristics of the audit firm, is an important factor which influences audit quality and accounting information. In recent years, the auditing profession in China has attached great importance to firm industry specialization. Also, China has promulgated a number of policies and regulations to encourage the audit firm develop industry specialization. So, based on the background of China’s capital market, this study is the first to examine the relationship between audit firm specialization and audit report lag. In this study, we puts forward the following two hypotheses:(1) the higher the audit firm industry specialization, the shorter the audit report lag;(2)the shorter audit firm tenure is, the more obvious effect industry specialization has on the shortening of audit report lag.In this paper, audit report lag is defined as the period between a company’s fiscal year end and the audit report date and we use IPS measuring audit firm industry specialization. The empirical results show that the audit firm industry specialization is negatively correlated with the audit report lag. This explains that firms with industry specialization has more direct or indirect experience related to industry, and they can identify and assess more effectively the level of risk of the unit being audited, design more targeted audit procedures, shorten the time of the auditing, issue the audit report in time, and shorten the audit report lag, which is consistent with our hypothesis. At the same time, we divide the samples into long term and short term according to audit tenure and then inspected them, and the results confirm that the role the audit firm industry specialization plays in shortening the audit report delay is more significant when the audit tenure is the short term.There are three main points of innovation in this paper. First, based on the background of China’s capital market, this paper, for the first time, discusses the influence of audit firm industry specialization on audit report lag, enriches the research in this field, and helps regulators and investors to have a more comprehensive understanding of the factors influencing audit delay.Second, this article raises that the IPS measurement is more in line with the definition of industry specialization, and can reflect the firm’s level of industry specialization more accurately.Third, by comparing the influence of audit firm industry specialization on audit report lag in different cases of audit tenures, this paper finds that when the firm is not familiar with the client, audit firm industry specialization has a significant impact on the audit report lag.But still, drawbacks beyond control exist to be eliminated with future research going further. First, there may exist omission of control variables, which may result in the fact that the R2of the model is not high. Second, this paper only chooses the Main Board of the Company as the research object and measures the industry specialization with the A-share market share of IPS of audit firms, so some of the firms serving the industry but having not issued A shares is not within the statistical category, which may weaken the explanatory power of this study.