Audit Delay and Its Implication for Fraudulent Financial Reporting: A Study of Companies Listed in the Indonesian Stock Exchange

Abstract

JEL Classification : F3, G15 1. Introduction One of characteristics reflecting the professionalism of is timely submission of audit reports. The timeliness of companies in publishing financial reports to public and particularly to Bapepam depends on auditors timeliness in completing audit works. Such timeliness is related to the benefits of the financial statements themselves (Kartika, 2009). Halim (2000) mentions that the timeliness of the presentation of financial statements and audit reports is the main prerequisite for the improvement of a company's stock price. On the other hand, auditing is an activity that takes time, which sometimes delays the announcement of earning and presentation of financial reports. Audit delay is the time difference between the dates of financial statements and the dates of audit opinions stated in the financial statements, which indicates the length of time of auditing processes. Research on audit delay has been conducted by several researchers, such as Carslaw and Kaplan (1991), Countis (1976), Dyer and McHugh (1975), Halim (2000), Givoly (1982), Thalassinos et al. (2013 and 2014), Thalassinos and Liapis (2013) and Na'im (1999). Conclusions of all these studies suggest that the intertwining of such factors as the size of a company, the total revenue, profitability, the duration of becoming a client KAP, and the company's books is positively associated very strongly with audit delay. In addition to these factors, there are other factors which can affect audit delay, such as the opinions of auditors. Research conducted by Whittred (1980) indicated that companies receiving opinions from qualified experienced longer audit delay. This phenomenon occurs because the process of granting the qualified opinions involves negotiating with clients, consulting with more senior audit partners, and the expansion of the scope of the audit. Although much research exploring audit delay of companies listed in Stock Exchange has been done, there are still many variations of the results. This is probably due to the differences of the nature of independent and dependent variables studied, differences in terms of the observation period, or differences with regard to statistical methodologies employed in the studies. This study examines factors which affect audit delay, including the company size, income, and operating system information. In addition, the study adds 'fraudulent as a variable which is a form of financial reporting implications of the audit delay. Based on the background issue, the problems of this study can be formulated as follows: * Do the use of information system, company size, and operating income have effects on audit delay? * Does the audit delay influence fraudulent financial reporting? The objectives of this study are: * to examine if the use of information system, the company size, and operating income affect audit delay; * to determine the effect of delay against fraudulent financial reporting. 2. Theory and Hypothesis According to IAI (2009), the prime objective of financial statements is to provide information regarding the financial position, performance and changes in financial position of an enterprise; this is useful for a large number of users for making economic decisions. The quality characteristics of financial statements as set forth in the Statement of Financial Accounting Standards (SFAS: 2009) are: Understandable Users are assumed to have adequate knowledge of economic and business activities, accounting, and willingness to study the information with reasonable diligence. Relevant The information has 'relevant' quality if it can influence the economic decisions of users, helping them to evaluate the events of the past, present and future. Reliable The information has the quality of being reliable if it is free from misleading understandings and material errors. …