Auditing Section Research Summaries Space

A Database of Auditing Research - Building Bridges with Practice

This is a public Custom Hive  public

research summary

    Internal Control Reporting and Audit Report Lags: Further...
    research summary posted March 9, 2015 by Jennifer M Mueller-Phillips, last edited March 9, 2015, tagged 07.0 Internal Control, 07.05 Impact of 404 on Fees and Financial Reporting Quality, 12.0 Accountants’ Reports and Reporting 
    Internal Control Reporting and Audit Report Lags: Further Evidence
    Practical Implications:
    • This study’s results, “provide empirical evidence about the extent of additional audit effort associated with clients’ internal control problems and the benefits of reduced audit report lag from remediation of such problems.
    • This study suggests, “that there are significant differences in the market for audit services for accelerated and non-accelerated firms, and underscores the need to separately analyze the two types of firms.”

    For more information on this study, please contact Vishal Munsif K.


    Vishal Munsif,K. Raghunandan,Dasaratha V. Rama (2012) Internal Control Reporting and Audit Report Lags: Further Evidence. AUDITING: A Journal of Practice & Theory: August 2012, Vol. 31, No. 3, pp. 203-218.

    audit report lag; Section 404; internal control.
    Purpose of the Study:

    This study was performed as an examination of, “the association between internal control weaknesses and audit report lags for (1) a later time period; specifically, the fifth and sixth years of Section 404 reporting, and (2) both accelerated and non-accelerated filers.”

    As stated in its introduction, this study was motivated by several factors:

    • Additional evidence from future years would be useful to determine the extent to which audit report lag is higher for clients with different types of Section 404 reports, particularly since report lags are strongly related to the extent of the auditor’s work.
    • There have been many changes in the audit environment since the first year of internal control audits. It is not clear how these changes could have impacted the audit lag for firms with material weaknesses.
    • Study constitutes an important extension of [prior literature], since the requirements of Section 404(a) for non-accelerated filers were not in place during the sample period of prior literature.
    • While many studies have examined issues related to internal control problems, research related to the remediation of discovered problems is relatively sparse
    Design/Method/ Approach:

    This study used a regression model to examine three research questions:

    • RQ1: What is the audit report lag associated with material weaknesses in internal control in years five and six of Section 404 reporting?
    • RQ2: Is the audit report lag associated with material weaknesses in internal control shorter for non-accelerated filers than for accelerated filers?
    • RQ3: Is the audit report lag for clients that remediated material internal control weaknesses:
    • (a) lower than for clients that did not remediate such weaknesses? (b) higher than for clients that did not report such problems in the prior year?

    Data was procured from the Audit Analytics database for information about Section 404 reports, auditor information, and audit report date for years 2008 and 2009. 

    • In 2008, the increase in audit report lag in the presence of material weaknesses in internal control is lower for non-accelerated filers as compared to accelerated filers
    • While the effect of a material internal control weakness on audit report lag is significantly lower in 2009 than in 2008 for accelerated filers, there is no such change for non-accelerated filers.
    • For firms remediating previously disclosed internal control problems, there is a significant decline in audit report lag; yet, the remediating firms continue to have higher reporting lags than firms that had clean Section404 opinions in both years.
    • At least with respect to the effect of internal control problems on audit report lag, the ‘‘small accelerated filers’’ (defined as those with market capitalization less than $250 million) are treated by the auditors as being (1) substantively similar to other accelerated filers, and (2) quite distinct from non-accelerated filers.
    Internal Control
    Impact of 404 on Fees and Financial Reporting Quality