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    The Relationship between Audit Report Lags and Future...
    research summary posted October 20, 2014 by Jennifer M Mueller-Phillips, tagged 10.0 Engagement Management, 10.01 Budgeting and Audit Time Management, 12.0 Accountants’ Reports and Reporting, 12.03 Restatements 
    The Relationship between Audit Report Lags and Future Restatements
    Practical Implications:

    It is important for auditors to understand that extending an audit not only creates the opportunity to collect additional evidence but also increased the time pressure on auditors. Audit firms should consider how to mitigate the time pressure associated with long audit. Further, audit committees should understand the trade-off involved in pressuring the auditors to meet filing deadlines and the effect on audit quality. Finally, regulators should be attentive to the consequences future regulation can have with time pressures on auditors and reduced filing times



    For more information on this study, please contact Dr. David Hurtt.


    Alan I. Blankley, David N. Hurtt, and Jason E. MacGregor. 2014. The Relationship between Audit Report Lags and Future Restatements. Auditing: A Journal of Practice & Theory 33 (2): 27-57.

    Audit report lag, restatements, time pressure
    Purpose of the Study:

    It is important for financial statements users to understand what factors could signal a heightened risk for future financial statement restatement. This paper considers whether audit report lag, that is the time gap between fiscal year-end and the date of the auditor’s report, is associated with a heighten risk of future restatement.

    Some believe the audit report lag signals the volume of work expended to complete the audit engagement. Under this belief, the lag is viewed as a proxy for an auditor effort. So an unexpectedly long audit would indicate that additional effort was exerted. Since auditor effort should reduce the risk of restatement, unexpectedly long audit would indicate lower risk of future restatements. However, some believe audit lag indicates the time pressure an auditor is facing to complete the engagement. Since time pressure undermines auditor effectiveness, long audit would increase the risk of restatement. 

    Design/Method/ Approach:

    Audit lag data and restatement data was collected from Audit Analytics for the 2002 through 2009 period. The authors used two statistical models to study the association audit lag may have with future restatements. First, using an audit lag model based on prior research, the authors derived the abnormal or unusual audit lag after controlling for audit risk, client complexity, internal control strength and other influences on lag. In the second model, the authors tested a robust logistic regression model where the variable of interest was the abnormal audit lag derived from the first model.

    • The authors find that there is a positive relationship between abnormal audit report lag times and the probability of a future financial statement restatement. This indicates long auditors are associated with low quality audit.
    • There is a positive relationship between auditor expertise and probability of a future restatement. The authors suggest that expertise brings in difficult engagements with complex audit issues, increasing the lag and the probability of a future restatement.
    • The authors contend that their findings indicate that audit report lags are associated time pressure. 
    Accountants' Reporting, Engagement Management
    Budgeting & Audit Time Management, Restatements