1

Relationship between Selected Corporate

Attributes and Timeliness in Developing
Countries: Empirical Evidence from
Bangladesh













Dr. Monirul Alam Hossain
Professor in Accounting
E-mail: monirulhossain@yahoo.com


And
Professor Peter Taylor
Manchester Business School
Email: peter.taylor@mbs.ac.uk








(*Correspondence to be made to the First Author)
2
Relationship between Selected Corporate
Attributes and Audit Delay/Timeliness in
Developing Countries: Empirical Evidence
from Bangladesh


Abstract

Timeliness of annual reports is an important attribute of their usefulness. There is a lack
of research about the timeliness of the published audited accounts of the companies in
developing countries in general and audit delays in particular. This paper empirically
examined the relationship between the audit delay and several company characteristics
in a developing country, Bangladesh. The objectives of this study are two-fold. First, to
measure the extent of audit lag in Bangladesh and to establish the impact of selected
corporate attributes on audit delays in Bangladesh. Both univariate and multivariate
analyses are performed to test the hypotheses of the study. The audit delay for each of
the 78 listed sample companies ranged from a minimum interval of 41 days to a
maximum interval of 546 days. Bangladeshi listed companies take approximately 171
days on average beyond their balance sheet dates before they finally ready for the
presentation of the audited accounts to the shareholders at the annual general meeting.
This evidence suggests that timeliness may not be an important concern for Bangladeshi
companies in financial reporting policy. With regard to timeliness as a qualitative
objective of financial statements, this evidence can be regarded as unsatisfactory. The
results for the sample of 78 listed Bangladeshi companies showed that audit delay was
only significantly related to the industry variable. Other six corporate attributes found
not to be significantly associated with audit delay.


3
Examination of Audit Delay: Evidence from
Bangladesh


1 INTRODUCTION
The usefulness of published corporate reports depends on their accuracy and their
timeliness. Timeliness was first identified by the American Accounting Association
(AAA, 1954 and 1957) as one of the qualitative attributes of usefulness in accounting
information. Subsequently, the Accounting Principles Board (APB) in the USA, the
Institute of Chartered Accountants of Canada (ICAC) and the Institute of Chartered
Accountants of England and Wales (ICAEW) followed the AAA path recognising
timeliness as one of the most important characteristics of financial statements. Timeliness
requires that information should be made available to financial statement users as rapidly
as possible (Carslaw and Kaplan, 1991) and it is a necessary condition to be satisfied if
financial statements are to be useful (Davies and Whittred, 1980; p. 48-49). The
usefulness of information disclosed in company annual reports will decline as the time
lag between year end and publication increases, and it has been argued by Abdulla
(1996) that the longer the period between year end and publication of the annual report,
the higher the chances that the information will be leaked to certain interested investors.
There are evidence that there is a relationship between the security prices and the
timeliness disclosure (Givoy and Palmon, 1984 and Chambers and Penman, 1984). It has
been argued that the shorter the time between the end of the accounting year and
publication date of accounting reports, the more benefit can be derived from audited
annual reports (Abdulla, 1996). Legal or other accounting regulations may not permit
publication of financial reports unless they have been certified by an external auditor.
Even in the absence of such restrictions, managers of reporting firms may be unwilling to
publish financial reports without audit certification due to agency cost considerations.
Thus, publication of annual reports by companies may be delayed by the need is that the
accounts need to be audited. Time lag in financial report publication and audit delay are
intertwined and frequently used interchangeably in the financial reporting literature. As
4
a result, in many cases timeliness timeliness have actually dealt with audit delays. The
length of the audit lag has been regarded as the single most important determinant of the
timeliness of the earning announcements (Givoy and Palmon; 1982, p.419).

Audit delay is generally defined in these studies as the length of time from a companys
financial year-end to the date of the auditors report. The present study has adopted this
definition of audit delay. The objectives of this study are two-fold. First, to measure the
extent of audit lag in a developing country, . Second, to establish the impact of selected
corporate attributes on audit delays in Bangladesh. This study possesses at least two
unique characteristics. First, Ashton et al. (1989) has argued for the inclusion of
additional variables to increase the predictive ability of audit delay studies. This study has
included two new company characteristics (audit fee and multinationality of the
companies) which never considered in prior research. Secondly, there is a paucity of
research about the timeliness of published audited accounts of the companies in
developing countries in general and a particular shortage of developing country studies of
audit delay. There are two only two studies which focused on the timeliness of corporate
annual reports in developing countries (Abdulla, 1996; and Ng and Tai, 1994). However,
there is no study which specifically examined the relationship between audit delay and
selected corporate attributes in the developing countries. This study is the first which
attempts to establish an association between a set of corporate attributes and audit delay
in Bangladesh.

The next section reviews existing research on reporting delay and audit delay. A model of
audit delay is presented in section 3, and the data used to test the model are described.
The results follow, and a concluding section discusses the limitations of the study and
future direction for further research.



5
LITERATURE REVIEW
Stock exchanges in different countries have certain requirements for listed companies to
publish their annual audited accounts within a specified period after the end of their
accounting period. In developed countries, the filling requirements for listed companies
vary from 90 days (in the USA and New Zealand), four months in the case of Australian
listed companies and six months (in the UK) after the balance sheet date (Davis and
Whittred, 1980; and Dayer and McHugh, 1975).

In developing countries, Bahraini listed companies are required to publish their annual
reports within 165 days from the financial year-end (Abdulla, 1996), while in the cases
of India and Bangladesh the maximum time limit to prepare corporate annual reports or
financial statements for presentation at the annual general meeting is six months and
nine months respectively from the accounting year end.

In Bangladesh, the Companies Act 1913 or 1994 specifies the time limit for the
presentation of the annual report at the annual general meeting as a maximum of six
months after the accounting year end of the company. According to the Bangladeshi
Companies Act 1913 and 1994, listed companies are not required to prepare quarterly or
interim reports and the stock exchanges in Bangladesh do not prescribe any such time
limit other than the requirements of the Companies Act 1994.

During the last four decades the research literature on timeliness has become established
in financial accounting. This literature has been reviewed to provide the background to
formulation of the hypotheses which have been used in this study. As already noted, the
first formal recognition of the importance of timeliness came in 1954 AAA (1955) and
(1957). They observed that, Timeliness of reporting is an essential element of adequate
disclosure (AAA, 1955; p.46). Subsequently, many researchers and professional bodies
followed the AAA in acknowledging the role of timeliness in corporate financial
reporting theory and practice (see for example, Accounting Principles Board, 1970;
Courtis, 1976; Givoly and Palmon, 1982; Carlow and Kaplan, 1991).

6
A number of empirical studies have been undertaken which seek to explain audit delay
using variables representing selected corporate attributes. Typically most of these studies
have used multivariate regression analysis and a brief review of some of the key studies
follows.

Dyer and McHugh (1975) attempted to discover reasons for the delay in the
publication of annual financial reports of Australian companies. Their model sought to
establish the impact of selected corporate attributes on reporting delays of a sample of
120 companies randomly selected from companies listed on the Sydney Stock Exchange.
Apart from taking time lag data from the annual reports, they distributed questionnaires
to the controllers and auditors of the sample firms. The study revealed that sixty six
percent of the mean total lag was consumed in pre-audit delays and year-end audit
examination. Of the three corporate attributes investigated, only corporate size appeared
to account for some of the variations in total lags, but the relationship did not appear to be
very strong. The relationship was, however, inverse as expected. Their results tend to
support the hypothesis that there is a significant relationship between the time lag and the
companys profitability.

Courtis (1976) reported the findings of his results on 204 listed New Zealand
companies for the year 1974. He examined the association of four corporate attributes
including three measures of corporate size (proxied by book value of total assets, the
dollar value of sales revenue and number of employees), age of company, number of
shareholders, and the pagination length of the annual report, with time lag in corporate
report preparation and publication. The influence of business sector was also examined.
He found that the average interval of time between balance sheet date and date of annual
general meeting was 18 weeks, twelve of which is purported to be absorbed by audit
process. He found that slow reporters tended to be less profitable as a group than fast
reporters; and fuel and energy and finance companies, as specific groups tend to be faster
reporters than service industries and mining and exploration companies as specific group.
Mann-Whitney Z and U tests were used which revealed that none of the four corporate
7
variables were statistically significant in explaining reporting lags across the whole
sample.

Gilling (1977) argued that Courtiss (1976) investigation failed to establish any
statistically significant association between corporate attributes and reporting delays,
because the lag, in his view, was essentially an auditing lag. So, Gilling asserted that
auditor attributes should be examined instead of company attributes in order to find a
meaningful explanation of reporting lag. Gilling (1977) studied 1976 annual reports of
187 New Zealand listed companies, and found that these companies are audited by 50
audit firms and approximately 69% of the listed companies were audited by the seven
largest auditing firms. The average interval between balance sheet date and the date of
the auditors report was 80 days in 1976 and 77 days in 1974. The mean reporting delay
of companies audited by the leading audit firms was significantly less than that of
companies audited by the other 43 firms. More importantly, the mean time lag for the 20
overseas companies in the sample was relatively short at 53 days and for 24 public
companies with assets over 50 millions dollars the mean delay was 70 days. He
suggested that this is because of conscious scheduling of audit work by large public
companies.

Givoly and Palmon (1982) found an improvement in the timeliness of annual
reports of 210 companies listed on the New York Stock Exchange (NYSE) over a period
of 15 years from 1960 to 1974. They focused on the abbreviated audited annual reports
published in the earnings digest of The Wall Street Journal ahead of the full annual
report. Corporate size and complexity of operations were used to explain timeliness.
Reporting delays appeared to be more closely associated with industry patterns and
traditions rather than with the company attributes studied. It was, however, found that bad
news tended to be delayed and that the degree of market reaction to early and late
announcements was differential. Late announcements appeared to convey less new
information than earlier reports. They reported that time lags decreased over time. Sales
as a proxy of size was found to be negatively related to the timeliness of annual report.

8
Whittred and Zimmer (1984) examined the association between time lag and a set
of corporate attributes in Australia. Their study showed that the firms not facing financial
distress take less time to publish annual reports than firms that are facing financial
distress. Further, their findings tend to support their hypothesis that company
management will strive to delay releasing bad news or to suppress information that might
damage the company.

Ashton, Willingham and Elliott (1987) examined the relationship between audit
delay and 14 corporate attributes in the USA. Their sample included 488 US annual
reports (both public and non public) belonging to six companies in six different
industries. The explanatory variables used in their model were total revenues, firm
complexity (proxied by four variables), industry classification, public/non-public status,
month of financial year-end, quality of internal control, the relative mix of audit work
performed at interim and final dates, the length of time the company had been a client of
the auditor, profitability (proxied by two variables), and the type of audit opinion issued.
The results tend to indicate that five variables were significantly related to the audit
delay, and these were total revenues, one of the complexity measures, the mix of interim
and final dates and the quality of internal control irrespective of the fact that they were
publicly or non-publicly traded..


Carslaw and Kaplan (1991) extended prior research of audit delays in New
Zealand by seeking to capture both auditor and corporate attributes in their regression
model. The results suggested that only two of nine explanatory variables were
statistically significant. These were corporate size, which was found to be inversely
related and existence of loss which was found to be directly related. Other variables
studied but which proved statistically insignificant were industry, existence of
extraordinary items, audit opinion, audit firm size, year-end, ownership (owner controlled
vs. manager controlled), and debt proportion.

9
Ng and Tai (1994) empirically examined the association between audit delay and
ten company characteristics for listed companies in Hong Kong for the years 1990 and
1991. Their results showed that log of sales and degree of diversification were
significantly related to audit delay in both years. However, change in EPS was found to
be significant only in 1990 and reporting of extratraordinary items proved to be
significant only in 1991.

Abdullah (1996) reported empirical evidence on timeliness for a sample of annual
reports of 26 Bahraini companies. He examined association between the time lag and a
set of five determinants. His results show a significant negative relationship between
timeliness of publication and the firms profitability, size, and distributed dividend.
However, the relationship between timeliness and industry membership was insignificant
and the direction of coefficient of relationship between the debt-equity ratio and
timeliness was not as predicted.

10
3.0 SAMPLE, DATA SETS, HYPOTHESES
DEVELOPMENT AND MODEL OF AUDIT DELAY

3.1 The sample of Companies
The sample covers listed Bangladeshi companies for the year 1993 on the Dhaka Stock
Exchange (DSE). Lists of companies available for inclusion in the sample were obtained
from address books of the companies listed on the DSE. The populations covers an
estimated 120 companies, however, 78 of the 120 company annual reports were available
in the filings of the DSE. The time audit delay data on each of the 78 sample companies
were taken from their annual reports. In addition, the figures for shareholders equity and
debt-equity ratio were calculated from the information provided in the annual reports.
The dependent variable, was calculated from the dates supplied in the corporate annual as
the interval of days between the balance sheet date and the date of signature of the
auditors report.

Corporate Attributes and Audit Delay Relationship
This Section examines the corporate attributes affecting audit delay of listed companies
in a developing country, Bangladesh. The dependent variable used in this study is audit
delay (AUD) which has been calculated for each of the companies under study.

Several of the explanatory variables used in the study have been adopted from previous
studies undertaken by other researchers. As noted earlier, two new explanatory variables
have been introduced to investigate audit delay in a developing country context in general
and in Bangladesh in particular. A model of audit delay consisting of seven company
characteristics has been developed from the work of Courtis (1976), Ashton et al. (1989),
Ashton et al. (1987) and Carslaw and Kaplan (1991) with some exceptions. The corporate
attributes examined in this study are size of the company (proxied by log of and assets),
debt-equity ratio, profitability (PROFIT), status as a subsidiary of multinational
companies (MULTICOM), audit fee, industry type (INDUSTRY) and audit firm size
(INLINK). Of the seven explanatory variables, INLINK, INDUSTRY, MULTICOM and
11
PROFIT are dummy variables. The following paragraphs provide the rationale for the
hypothesised relationships between each of the seven variables and audit delay.

1. Size of company
There are several studies which have been found that there is a significant association
between the size of the reporting company and audit delay in both developed and
developing countries (Newton and Ashton, 1989; Davies and Whittred, 1980; Ashton et
al., 1989; Carslaw and Kaplan, 1991; Garsombke, 1981; Gilling, 1977 and Abdulla,
1996). For example, Ashton et al. (1987; p.660) held that their analyses indicated that
assets provided greater explanatory power. Most early researchers have used total assets
as the measure of company size. A negative relationship between audit delay and the
company size has been confirmed by most empirical studies. However, researchers like
Givoly and Palman (1982) found that there is no significant relationship (either negative
or positive) between the size of the company and the audit delay.

There are several justifications why company size could be negatively related to the
extent of audit delay. Larger companies may be hypothesised to complete the audit of
their accounts earlier than smaller companies for a variety of reasons. Firstly, it has been
argued that the larger companies may have stronger internal controls, which in turn
should reduce the propensity for financial statements errors to occur and enable
auditor(s) to rely on controls more extensively and to perform more interim work
(Carslaw and Kaplan, 1991; p.23). Secondly, larger companies have the resources to pay
relatively higher audit fees to ensure the performance of the audit soon after the year end
of the financial year and vice versa. Thirdly, the larger the firm, the more and larger the
audiences who are interested in its affairs (Abdulla, 1996). Dyer and McHugh (1975)
argued that management of larger companies may have incentives to reduce both audit
delay and reported delay since larger companies may be monitored more closely by
investors, trade unions and regulatory agencies, and thus face greater external pressure to
report earlier. Therefore, researchers like Davies and Whittred (1980), Ashton et al.
(1989), Carslaw and Kaplan (1991) and Abdullah (1996) argued that to reduce
uncertainty about performance that might reduce share price, larger firms tend to
12
complete their audit work as soon as possible in order to release their annual reports.
Finally, larger companies may be able to exert greater pressures on the auditor to start
and complete the audit in time (Carslaw and Kaplan, 1991). In this study, log of total
assets and sales have been used as the measure of company size. The following specific
hypothesis has been tested regarding size of the firm:

H
1
: firms with greater assets are likely to experience completion of audit of their
accounts sooner than those firms with fewer total assets.

2. Debt-equity ratio
The debt-equity ratio has been studied empirically by some researchers to assess whether
it bears any relationship to audit delay. However, researchers like Carslaw and Kaplan
(1991) and Abdulla (1996) found no significant association between the debt-equity ratio
and audit delay. The nature of the relationship between audit lag and debt-equity is
ambiguous. It has been argued that increasing the amount of debt used, will put pressure
on the firm to provide its creditors with audited financial reports more quickly (Abdulla,
1996). Companies having more debt in their financial structure can start and complete
the audit quicker than firms with less or no debt. Relatively highly geared companies
have an incentive to complete audit work in order to have the auditors report for
facilitating both monitoring by creditors and implementation of any corrective measures
(Abdulla, 1996). In addition, such companies may release their audited annual reports
more quickly to reassure at the earliest opportunity equity holders who may reduce risk
premiums in required rates of return on equity. However, the quick release of audited
financial statements is not possible unless the audit work is accomplished. On the other
hand, there is a possibility that companies with higher debt-equity ratios may want to
disguise the level of risk and may delay publishing their annual reports. Thus, they may
have an incentive to defer audit work as longer as possible. Several measures of leverage
have been used in previous studies, including debt to total assets, total debt, debt
proportion (Carslaw and Kaplan, 1991) as well as the debt-equity ratio. The debt-equity
ratio has been used as a measure of leverage in this study. The following specific
hypothesis has been tested regarding the debt-equity ratio:

13
H
2
: firms with higher debt-equity ratios are likely to experience completion of audit
sooner than firms with lower debt-equity ratios.

3. Profitability
Profitability has been used by some researchers as an explanatory variable for audit delay
(e.g., Dyer and McHugh, 1975; Carslaw and Kaplan, 1991 and Courtis, 1976). Among
these researchers Courtis (1976) and Dyer and McHugh (1975) found a positive
association between profitability and audit delay whereas Carslaw and Kaplan (1991)
found a negative association between the variables.

There are arguments in favour of the profitability variable being negatively associated
with audit delay. First, profitability can be considered one indication of whether good
news or bad news resulted from the years activity (Ashton, Willingham and Elliott,
1987). If the company experiences losses management may wish to delay releasing the
annual report in order to avoid the discomfort of communicating bad news. It has been
argued that a company with a loss may request the auditor to schedule the start of the
audit later than usual (Carslaw and Kaplan, 1991; p.24). On the other hand, companies
having higher profitability may wish to complete audit of their accounts as early as
possible in order to release quickly their audited annual reports to convey the good
news. So, it is likely that if the profitability of a company is high, management is likely
to hurry to publish the corporate annual report in order to experience the comfort of
communicating it if it is good news. For profitable companies if the net profit margin or
the rate of return on investment is more than the industry average may constitute good
news as may profits greater than market expectation. Further, there is an argument that
an auditor may proceed more cautiously during the audit process in response to a
company loss if the auditor believes the companys loss increases the likelihood of
financial failure or management fraud (Carslaw and Kaplan, 1991; p.24).

In this study, profitability is treated as a dummy variable and is labelled PROFIT.
Where companies were reporting a profit for the period they are expected to minimise
audit delay, and have been assigned a 1, and rest of the companies were which were
14
sustaining losses assigned a 0. The following specific hypothesis has been tested
regarding profitability:
H
3
: firms with profit are likely to experience completion of the audit of their accounts
sooner than firms with losses.

4. Status as a Subsidiary of a Multinational Company
It may be argued that the subsidiaries, in developing countries of parent multinational
companies from developed countries are likely to start and complete the audit of their
accounts more quicker than their local counterparts. Several justifications may be offered
for the inclusion of this variable. The subsidiaries of multinational companies may have
to prepare their accounts very soon after the end of the accounting period for
consolidation purpose. Hence, it is very important for such subsidiaries of multinationals
to prepare and complete the audit of their accounts as early as possible.

Apart from this, the shares of the subsidiary companies may be viewed as blue chips or
high-grade corporate securities in the domestic markets. Hence, the subsidiaries of
multinational companies may be motivated to communicate information more quickly to
the capital market than their domestic counterparts. In addition, it has been found that the
audits of multinational companies are more likely to be performed by international
auditing firms or Big Five firms may be relatively quick and efficient in finishing their
audit work. This variable is the first in studies relating to audit delay literature which
seeks to establish an association between status as a subsidiary of a multinational
company and audit delay. The following specific hypothesis was tested regarding this
variable:

H
4
: firms with mutinationality connections (subsidiaries of multinational companies) are
likely to experience completion of the audit of their accounts sooner than their
domestic counterparts.


5. Audit firm size
There are studies which have examined empirically the relationship between the size of
audit firm (or international link of the auditing firm) and audit delay (e.g., Carslaw and
15
Kaplan, 1991 and Gilling, 1977). Whereas Gilling (1977) found a significant positive
relationship between the audit delay and size of audit firms, Garsombke (1981), Carslaw
and Kaplan (1991) and Davis and Whittred (1980) found no significant association.

It can be argued that the larger audit firms in developing countries (hence, international
audit firms) have a stronger incentive to finish their audit work more quickly than smaller
audit firms in order to maintain their reputation. Otherwise, they may loose
reappointment as the auditor of their client companies in the coming year(s). The larger
and better known audit firms tend to have more human resources than smaller firms and
it has been argued that the former may be able to perform their audit work more quickly
than smaller audit firms.

It has been argued by Gilling (1977) that audit delay for companies with an international
audit firm as auditor is expected to be less than for audits from other audit firms, because
they are larger firms, might be able to audit more efficiently, and have greater flexibility
in scheduling to complete audits in time (Carslaw and Kaplan, 1991). Further it has been
argued by Ashton, Willingham and Elliott (1987; p.602)

It may be reasonable to expect that larger audit firms would complete
audits on a more timely basis because of their experience Large firms
may be able to audit such companies more efficiently than small audit
firms.

In this study, Bangladeshi auditors are classified into two groups- international auditing
firms including Big Six, and domestic audit firms. Most domestic audit firms in
Bangladesh can be characterised as sole proprietorship firms (although there exists some
partnership audit firms) and hence, they are small in size. Hence, the international link of
the audit may also proxy for size of audit firm. The INLINK variable used in this study
is a dummy variable representing 1 if the auditor is an international audit firm and 0 if
not. There is a negative relationship hypothesised between INLINK and AUD. The
following specific hypothesis has been tested regarding international link of the audit
firm:
16

H
5
: firms that engage audit firms with international links are likely to complete audit of
the accounts sooner than those firms that engage smaller domestic audit firms.

6. Audit fees
There are no studies which have found that there is a significant association between the
size of the audit fees of a reporting company and its audit delay in both developed and
developing countries. There are several reasons why audit fee size could be negatively
related to the extent of audit delay. The audit fees for the large manufacturing
corporations are higher as compared to smaller corporations. The audit work for the large
manufacturing corporations takes usually longer time because of the absolute amount of
inventory and receivables, and the proportion of assets in inventory and receivables and
number of subsidiaries within and outside the country. The following specific hypothesis
has been tested regarding the audit fees size:
H
6
: firms with lower audit fees are likely to have the audit of their accounts completed
sooner than those firms with higher audit fees.

7. Industry Type
Some earlier researchers have used industry type as an explanatory variable for audit
delay. One industry may have complex manufacturing process while others may not. The
adoption of different industry-related accounting measurement, valuation and disclosure
techniques and policies may cause delay in preparing accounts and audit of complex
industries. Therefore, the time to perform the audit work may be longer for the companies
having complex manufacturing process than other companies. For example, audit delay is
expected to be shorter for the trading companies or companies with simple manufacturing
process because such companies typically have little or no inventory. Inventories are
difficult to audit and represent an area where material errors frequently occur (Carslaw
and Kaplan, 1991, p. 24). Earlier researchers divided industries into two categories
(financial and non-financial) for purposes of analysis. However, in this study, companies
having complex operations have been assigned 1 and 0 otherwise. The following
specific hypotheses has been tested regarding industry type:
17

H
7
: firms with less complex operations are likely to experience completion of the audit of
their accounts sooner than companies having complex manufacturing process.

3.1 Multiple Regression Model for Audit Delay

Multiple linear regression technique has been used to test the hypotheses of the study. In
the model, time lag has been used as the dependent variable.
Y= o + |
1
PROFIT + |
2
MUTICOM + |
3
DERATIO + |
4
LOGASSETS + |
5
INLINK +
|
6
AUDITFEE + + |
7
INDUSTRY

c .................(1)

where, Y= audit delay (in days).
o = the constant, and
c = the error term.
The definitions of the seven corporate attributes and their expected effect on audit delay
in the regression model along with expected signs and relationships are presented in
Table 1.

18
Table 1
Definition of Corporate Attributes and Expected Effect on Audit Delay in the Regression
Variable
Labels
in the OLS
Corporate Attributes
Definition Expected
Relationship
with Audit
Delay

INLINK

International link of auditing
firms


The international link of audit firms represented
by a dummy variable; companies with the
international link assigned a 1 and otherwise
a0.

Negative
PROFIT Profitability of the firm Profitability represented by a dummy variable;
companies with positive net profit assigned a 1;
otherwise 0.

Negative
MULTICOM Subsidiary of a multinational
company

A multinational parent company having more
than 51% shares of the company

Negative
LOGASSETS Log of total assets Log of total assets of the company on the
balance sheet date

Negative
DERATIO Debt to equity ratio Long term debt divided by shareholders equity
at the end of the financial year

Positive
AUDITFEE Audit fees paid by the
company

The amount paid to the audit firm for the audit,

Positive
INDUSTRY Industry type Industry type has been represented by a dummy
variable; industries having complex
manufacturing process assigned a 1; otherwise
a 0.
Positive

4 Results of the Study
The results are presented in three sections. In the first section summary of the descriptive
statistics of the dependent variable (AUD) and the seven independent variables has been
presented. This is followed by a multivariate analysis of correlation coefficients and
finally, the results of our multiple regression model of audit delay and seven corporate
attributes are presented.


4.1 Descriptive statistics
19
It has been noted that in this study the audit lag (i.e., the interval of time after the balance
sheet date and the date of auditors report when the auditors formally present their report
to the company) has been considered. In this study the audit lag has been considered (i.e.,
the total interval of time between the balance sheet date and the date of auditors report
when the auditors formally present their report to the company). For example, if a
company has June 30 as its balance sheet date and if the date of auditors report is on
December 26 (1993), the total lag will be 178 days.
Table 2
Descriptive Statistics for Bangladeshi companies
Variable N Minimum Maximum Mean Standard
Deviation
AUDITFEE (in thousand Tk.) 78 3.20 655.48 86.271 142196.8
LOGASSETS (natural log) 78 6.55 9.60 8.30 .48
INDUSTRY 78 .00 1.00 3.59 2.49
DERATIO 78 .00 23.12 1.42 3.15
INLINK 78 .00 1.00 .22 .42
MULTICOM 78 .00 1.00 8.974E-02 .29
PROFIT 78 .00 1.00 .69 .47
AUD (days) 78 41 546 171.14 142.2

Table 2 shows that the total time lag for each of the 78 listed companies ranged from a
minimum interval of 41 days to a maximum interval of 546 days. Bangladeshi listed
companies take approximately 6.5 months beyond their balance sheet dates before they
finally present their audited accounts to the shareholders at the annual general meeting.
An obvious question is why it would take a company 546 days after the balance sheet
date to make a report. Like Bangladeshi sample companies, this evidence also suggests
that timeliness may not be an important concern for Bangladeshi companies in financial
reporting policy. One may speculate that determined higher benefit investors will gain
from an annual report issued 546 days after the end of the accounting year and on what
basis investors could decide to trade in a stock if the available annual report covered a
period which ended one year and six months prior.
20

4.2 Correlation analysis
To examine the correlation between independent variables, Pearson product moment
correlation coefficients (r) were computed. Three correlation matrixes for all the values
of r for the explanatory variables along with the dependent variable were constructed for
the three countries under study and are reported in Tables 9.3 (a), 9.3 (b) and 9.3 (c)
respectively .

To examine the correlation between the dependent and independent variables, Pearson
product moment correlation coefficients (r) were computed. A correlation matrix of all the
values of r for the explanatory variables along with the dependent variables was
constructed and is reported in Table 3. The Pearson product-moment coefficients of the
correlation between log of assets and audit fees variables is higher than the coefficient of
the correlation between every two of the other corporate attributes. Table 3 shows a
noteworthy collinearity ( p s 0.01) between certain variables (i.e., between log of assets
and audit fees variables (.419), between debt-equity and profitability variables (-.345), and
between subsidiary of a multinational company and international link of audit firms
(.377)). It is evident from the table that the magnitude of the correlation between variables
seems to indicate no severe multicollinearity problems.
21


Table 3
Spearman Rank Correlation for Bangladeshi companies

VARIABLES AUDITFEE DERATIO INDUSTRY INLINK LOGASSETS MULTICOM PROFIT
AUDITFEE 1.000
DERATIO -.240* 1.000
INDUSTRY .085 -.151 1.000
INLINK .231* -.086 .109 1.000
LOGASSETS .419** -.026 .095 .154 1.000
MULTICOM .316* -.263* .075 .377** .216 1.000
PROFIT .077 -.345** -.042 -.199 .171 .209 1.000
** coefficient of correlation significant at 1% level or better (p s0.001)
*coefficient of correlation significant at 5% level or better (p s0.05)

22

4.3 Results of Regression Analyses
Because assets and sales variables were correlated, OLS regression using assets as the
proxy for the size variable (but excluding sales) was estimated for the model. Then, a
second OLS regression using sales as a proxy for the size variable (excluding assets) was
estimated. For all countries under study, the results of the regression that included assets
(but not sales) showed a higher R
2
than the regression which included sales (but not
assets). Consequently, log of assets variable (LOGASSETS) was used as proxy for size.

Table 6 (b) indicates that the actual sign of four of the variables (INLINK, ASSETS,
DERATIO and INDUSTRY) were not in the direction predicted. It was hypothesised that
for the sample companies, except debt-equity ratio variable, size (log of assets),
profitability, subsidiary of multinational companies, audit fees and international link of
the audit firm would be positively associated with audit delay variable. However, it was
found that only the relation between audit delay and industry differences were significant
at 5% level and the mutinationality variable (subsidiary of a multinational company) was
significant at 10% level (see Table 6 (a). The association between audit delay and
profitability (PROFIT) variable was found to be significant only at a 20% level. The
relationship between audit delay and other four variables were found not to be significant.
The R
2
under the model was .1920, which indicates that the model is capable of
explaining 19.20% of the variability in the delay of publishing annual reports of sample
Bangladeshi companies under study. The adjusted R
2
indicate that 11.10 percent of the
variation in the dependent variable in the model used here is explained by variations in
the independent variables. The R
2
compares favourably with those reported by Ng and
Tai (1994), Ashton et al. (1987), Carslaw and Kaplan (1991) and Abdulla (1996). The F-
ratio indicates that the model significantly explains the variations in the timeliness of
annual reports in Bangladesh.
23
Table 6 (a)
Summary of the regression output for Bangladeshi companies

Coefficient of multiple regression (Multiple R) .438
Coefficient of determination (R
2
) .192
Adjusted R
2
.111
Standard Error 86.6356

Analysis of Variance
D.F. Sum of Squares Mean Squares
Regression 7 124902.6 8693.802
Residual 70 7505 1168.802
F ratio = 2.377
------------------ Variables in the Equation ------------------

Unstandardized Coefficients Standardized
Coefficients

Variable B Standard Error Beta T Sig T
(constant) 316.611 178.474 1.774 .080
AUDITFEES -9.6E-05 .000 -.148 -1.280 .205
DERATIO -.690 3.412 -.024 -.202 .840
INDUSTRY 9.768 4.278 .254 2.283 .025
INLINK 15.271 27.356 .069 .558 .578
LOGASSETS -18.194 22.137 -.095 -.822 .414
MULTICOM -75.605 39.054 -.237 -1.936 .057
PROFIT -24.285 24.055 -.123 -1.010 .316

24
Table 6 (b)
Relationship between audit lag and corporate attributes for Bangladeshi Sample
companies

Variable labels Expected sign Actual sign Significance level
INLINK
+

PROFIT


MULTICOM


ASSETS
+

DERATIO
+

AUDITFEE


INDUSTRY
+
**
** Significance level at 1%


25
5 Conclusion

It can be argued that the timeliness of annual reports is an area in which developed
markets differ from developing markets. It has been said that the timeliness of annual
reports is an area in which developed markets differ from developing stock markets. The
multivariate tests of audit delay of the Bangladeshi listed companies show that the
subsidiaries of multinational companies, companies with higher debt equity ratio and
larger companies in terms of assets tend to start and complete their audit work earlier.
The multinational attribute, a new variable for the first time used in the studies of audit
delay has proved to be significantly negatively associated with audit delay. Other new
variable audit fees failed to establish any relationship with the audit delay. Other three
corporate attributes also found not to be significantly associated with audit delay. The
multivariate tests of the timeliness of published reports of the Bangladeshi listed
companies show that industry type influences delay in completing audit work. The
INDUSTRY attribute proved to be significantly negatively associated at a 5% level. The
other variables were found to not be significantly associated with audit delay.

From the results of this study the following conclusions can be drawn. Firstly, there
appears to be evidence of an unusually long audit delay made by the Bangladeshi listed
companies included in this study. The average interval of time between balance sheet
date and the date of auditors report is 5.7 months for Bangladeshi companies. Although
for the Bangladeshi companies 41 days, the average audit lag for Bangladeshi companies
171 days as against shorter audit delays reported for other developed countries. With
regard to timeliness as a qualitative objective of financial statements this evidence can be
regarded as indicating unsatisfactory position regarding financial reporting in
Bangladesh. This may call into question the regulatory awareness and procedures in the
sample countries under study and may suggest concerns about the role of public
disclosure of audited accounting information versus that of insider trading of accounting
information. The lack of significance of a range of corporate attributes may suggest a
generalised delay in reporting audited accounting information across Bangladeshi
companies.
26

The findings of this study may be generalised across the developing and developed
countries after taking into consideration certain limitations. This study considers annual
reports for a single year. Further research can be undertaken to measure audit delay
longitudinally to determine whether the trend of audit delay has changed over time. Such
a study would provide additional insights to the underlying causes for the audit delay in
developing countries in general and in Bangladesh in particular. In addition, useful
comparisons could be made with comparable countries such as Sri Lanka.
27
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