Research On The Influence Of Internal Control Effectiveness On Audit Delay

An important feature of financial report is timeliness, which makes users of financial report acquire financial information as soon as possible. In addition to pay attention to the content of the financial report to learn whether it is true and reliable, investors also focus on the time of disclosure. The time is directly related to the quality of publication of listed companies’annual financial information, while the timeliness of financial report is largely subject to the fact that whether audit report could be submitted timely. In order to enhance the confidence of investors, it not only needs management release annual financial report timely, but also needs auditors finish work and submit audit report timely. However, there is a "time lag" between the ends of the fiscal year and the signing date of audit report, which makes outside learn the financial information over a period of time. As the extension of this period of time, it will diminish the economic value of information.Audit delay is one of the few indicators that can quantify the audit efficiency, which relates to the timeliness of corporate earnings’information disclosure directly. Audit delay is defined as the calendar days from the balance sheet date to the signing date of audit report. The value of information from the audited financial report will reduce gradually with the increase of audit delay. The shorter the audit delay, the more timely the audit report will be. Long audit delay means a lag in acquiring earning information, which makes the investors obtain the required financial information through other alternative channels that are potential and costly. To a certain extent, it impairs the value of the annual report to investors and also weakens the value of the audit.Internal control is defined as the process that is carried out by the board, management and other employees, which in order to reasonable guarantee the effectiveness and efficiency of management, the reliability of financial report and the compliance with laws and regulations. Whether the internal control is effective depends on the rationality of design and the effectiveness of operation. Inadequate control may increase the cost of audit, because auditors need to test the balance of financial statement extensively before forming audit opinion. On the contrary, the sufficient and effective internal control can provide reasonable assurance to the reliability of financial report, and also can improve the efficiency of audit partly at the same time.With this in mind, the article will focus on the concept of audit delay and discuss the influence on audit delay from the angle of internal control effectiveness. This paper adopts the combination of normative research and empirical research. In the part of normative research, it mainly uses agency theory, information theory and transaction cost theory as the foundation, which gives support to the relationship of internal control effectiveness and audit delay through constructing theoretical framework.In the part of empirical research, this paper draws on "Di Bo· China’s listed company internal control index" which is put to use as the measurable indicator of internal control effectiveness, then uses China’s A-stock listed companies from2009to2011as sample to study the influence of internal control effectiveness on audit delay. I find that the correlation between internal control effectiveness and audit delay is significant negative, which shows that the higher internal control effectiveness the less audit delay the company has. Companies can prevent or discover and correct possible material misstatement caused by error or fuaud through designing and runing this mechanism. Internal control with rational designed and executed can enhance the auditors’confidence, which makes them choose more control tests before the end of fiscal year and reduce substantive tests greatly that are performed after the end of fiscal year. This shows that to establish and perfect the internal control system is helpful to improve the efficiency of audits, and then can achieve the purpose of disclosure annual report information timely.In the further research, I study the influence of internal control effectiveness on audit delay in the privative governance environment and agent governance environment respectively. According to the results, in the privative governance environment, the reduction effect of internal control effectiveness on audit delay will be weakened gradually following the increase of the largest shareholder’s proportion. It enlightens us that only by establishing and perfecting internal control system may not be able to reduce audit delay effectively when enterprise exist controlling shareholder. However, in the agent governance environment, this conclusion is just the opposite, which means that the reduction effect of internal control effectiveness on audit delay will be more obvious in the company that general manager holds the position of chairman of the board concurrently. This indicates that compared to the company with higher board independence, although imperfect internal control show longer audit delay in the company with lower board independence, perfect internal control system will narrow the gap between those two type companies gradually. It enlightens us that strengthen the construction of internal control can supplement and perfect the corporate governance mechanism in the company which diffuses ownership and general manager holds the position of chairman of the board concurrently, which aims at carrying on effective supervision to the general manager’s business decisions, thus can improve the quality of information disclosure and reduce audit delay.This paper mainly divided into two parts.The first part is the theoretical analysis, including chapter2and chapter3.Chapter2mainly systematic review and analysis the measure of internal control effectiveness, the influence factors of audit delay and the relationship between internal control effectiveness and audit delay, we find that:①The measure of internal control effectiveness is not mature, which means that qualitative measuring method is limited by standard definition and evaluation method of internal control effectiveness while quantitative measure method is restricted by the cost in the actual operation;②The effect of internal control effectiveness on audit delay is insufficient in the research, which means that domestic research starts late and existing researches focus on those influence factors such as company size, net income, audit opinion and the type of audit firm and so on. Moreover, only three papers discuss the impact of internal control on audit delay. On the basis of reviewing the research achievements at home and abroad, we lead to the research direction of this paper.Chapter3defines two concepts of internal control effectiveness and audit delay firstly. Then it analyzes the system background of internal control and present situation of audit delay in our country. Finally it discusses the inhibitory effect of internal control effectiveness on audit delay from three aspects that are mitigating agency conflicts, easing the information asymmetry and reducing transaction cost, in order to lay the foundation for study design below.The second part is the empirical analysis, including chapter4and chapter5.Chapter4proposes three research hypotheses of this paper firstly on the basis of the foregoing theoretical analysis, including:①Ceteris paribus, the more effective internal control, the less audit delay will be;②Ceteris paribus, the reduction effect of internal control effectiveness on audit delay will be weakened gradually following the increase of the largest shareholder’s proportion;③Ceteris paribus, the reduction effect of internal control effectiveness on audit delay will be more obvious in the company that general manager holds the position of chairman of the board concurrently. Then we complete research design according to the research assumes, including:define variables, select sample, build model, descriptive statistics and multivariate regression analysis and so on.Chapter5summarizes the research conclusion of empirical generalization of chapter4. In this paper, we reach these conclusions:①The correlation between internal control effectiveness and audit delay is significant negative, which shows that the higher internal control effectiveness the less audit delay the company has;②In the privative governance environment, the reduction effect of internal control effectiveness on audit delay will be weakened gradually following the increase of the largest shareholder’s proportion;③In the agent governance environment, the reduction effect of internal control effectiveness on audit delay will be more obvious in the company that general manager holds the position of chairman of the board concurrently. Then we propose policies and suggestions. Finally, we summarize the research deficiency and limitation and look forward to the future research direction.