The New Chinese Accounting Standards and Audit Report Lag

Abstract

The audit report lag, defined as the period between a company's fiscal year‐end and the audit report date, has been considered to be one of the few externally observable audit output variables allowing outsiders to evaluate audit efficiency. Prior research on the determinants of the audit report lag has investigated a common set of firm characteristics, including firm size, fiscal year‐end, loss occurrence, presence of extraordinary items, client complexity, and audit opinion. However, there is scant research on the effect of changes in reporting regulations on the audit report lag. This paper examines empirically the effect on the audit report lag of a new set of Chinese accounting standards introduced in 2007 that were based on the fair value accounting system. We document empirical evidence of a significant increase in the audit report lag in China after the adoption of these new accounting standards. This increase, however, is more pronounced for clients audited by small audit firms.