Audit committee effectiveness and timeliness of reporting: Indonesian evidence

Abstract

Purpose

The purpose of this paper is to examine the association between audit committee effectiveness and timeliness of reporting. Specifically, the paper investigates whether there is any relationship between effectiveness of an audit committee and submission of audited financial statements to the Indonesian Stock Exchange (IDX).

Design/methodology/approach

Audit committee effectiveness is measured by an index based on the framework developed by DeZoort et al. Timeliness of reporting is defined as the number of days that elapses between a company's financial year‐end and the day on which its audited financial statement is received by the IDX. The sample comprises 211 non‐financial Indonesian listed companies. Multivariate regression analysis was performed to analyse the relationship between audit committee effectiveness and timeliness of reporting.

Findings

The findings show that timeliness of reporting is associated with audit committee effectiveness. This result suggests that audit committee effectiveness is likely to reduce the financial reporting lead time, i.e. the time taken by companies to publicly release audited financial statements to the stock exchange.

Research limitations/implications

The audit committee effectiveness index employed in this study was based on DeZoort et al.'s framework. There could be other aspects of audit committee effectiveness such as the organizational context or multiple‐directorship which had not been addressed in the present study. Thus, future research may consider and examine these other aspects in developing a more comprehensive index.

Practical implications

The findings suggest that audit committee effectiveness is a significant factor ensuring timely submission of audited financial statements. Thus, companies perhaps can re‐look into how to further improve audit committee effectiveness in order to enhance timeliness of financial reporting.

Originality/value

Unlike the majority of prior studies which investigated the association between the presence/absence of audit committee and timeliness of reporting, this study is one of few which examined the relationship between effectiveness of audit committee and timeliness of reporting in an emerging country.

Citation

Rochmah Ika, S. and Mohd Ghazali, N.A. (2012), "Audit committee effectiveness and timeliness of reporting: Indonesian evidence", Managerial Auditing Journal, Vol. 27 No. 4, pp. 403-424. https://doi.org/10.1108/02686901211217996