ANALIZING THE INFLUENCE OF CAPITAL
STRUCTURE, ENTITY SIZE, AND INDEPENDENT
AUDITOR QUALITY TOWARDS AUDIT REPORT LAG
SKRIPSI
By
ANGELINA SURYANI
008201200139
Presented to
The Faculty of Business, President University
In partial fulfillment of the requirements
For
Bachelor Degree in Economics, Major in Accounting
PRESIDENT UNIVERSITY
Cikarang Baru – Bekasi
Indonesia
2016
ii
PANEL OF EXAMINERS
APPROVAL SHEET
Herewith, the Panel of Examiners declares that the skripsi entitled “Analizing the
Influence of Capital Structure, Entity Size, and Independent Auditor
Quality towards Audit Report Lag” submitted by Angelina Suryani,
Accounting Study Program, Faculty of Business has been assessed and proved
pass the Oral Examination on Tuesday, February 9th,2016.
Drs. Gatot Imam Nugroho, Ak., MBA.
Chair - Panel of Examiners
Misbahul Munir, Ak., MBA, CPMA, CA.
Examiner I
DR. Sumarno Zain, S.E., Ak., MBA.
Examiner II
iii
SKRIPSI ADVISOR
RECOMMENDATION LETTER
This skripsi entitled ANALYZING THE INFLUENCE OF CAPITAL STRUCTURE,
ENTITY SIZE, AND INDEPENDENT AUDITOR QUALITY TOWARDS AUDIT
REPORT LAG” prepared and submitted by Angelina Suryani in partial fulfillment of
the requirements for the degree of Bachelor in Faculty of Business has been reviewed and
satisfied the requirements for a thesis fit to be examined. We therefore recommend this
thesis for Oral Defense.
Cikarang, Indonesia, January 19th , 2016
iv
DECLARATION OF ORIGINALITY
I hereby declare that the skripsi entitled “Analizing the Influence of Capital
Structure, Entity Size, and Independent Auditor Quality towards Audit Report
Lag” is originally written by myself based on my own research and has never been
used for any other purpose before. I therefore request the thesis for oral defense.
Cikarang, Indonesia, January 19th , 2016
Researcher,
ANGELINA SURYANI
008201200139
v
ANALIZING THE INFLUENCE OF CAPITAL
STRUCTURE, ENTITY SIZE, AND INDEPENDENT
AUDITOR QUALITY TOWARDS AUDIT REPORT LAG
ABSTRACT
Audit Report lag is the range date between the date of financial year-end to the
auditor’s report signing date. Indonesian entities are required to report their financial
statement audit to Badan Pengawas Pasar Modal (BAPEPAM) within 90 days after
financial year-end. It is important consider the audit report lag as the fined of the
lateness is Millions Rupiah and the manufacture entities listed in Indonesia Stock
Exchange (IDX) are the entities that concern their obligation to their stakeholders and
wide-user financial statement to encourage the importance of information
management in faster the length of audit report published.
This research population is a study on manufacture entities listed in IDX year 2010-2014.
The researcher use purposive sampling based on some criteria. The independent variables
are capital structure, entity size, and independent auditor quality. The dependent variable
is audit report lag. Moreover the regression model used to test hypothesis is multiple
linear regression with significance of 5%.
The result of T-test is capital structure’s significance level is 0.019, entity size’s
significance level is 0.003, and independent auditor quality’s significance level is 0.003
which means all independent variables have significance influence to audit report lag.
The results of F-test is 0.000, because it is less than the significance level of 0.05, it can
be concluded that the independent variables simultaneously, or at least one of them affect
the audit report lag as the dependent variable.
Keywords: Audit Report Lag, Capital Structure, Entity Size, Independent Auditor
Quality.
vi
Do not be anxious about anything, but in every situation,by prayer and petition,
with thanksgiving, present your request to God – Philippians4:6
And the Lord, He it is that doth go before thee; he will be with thee, he will not fail thee,
neither for sakes thee: fear not, neither be dismayed – Deuteronomy31:8
Ad Maiorem Dei Gloriam
vii
ACKNOWLEDGEMENT
First, I would like to give my highest gratitude for my Almighty God,
Jesus Christ, who allows me to have everything that need for me. I might not
have all new experience, learn to head up from fell, and past University life
without His blessing to me. In this part of my skripsi writing, I would like also
to deliver my thanks and appreciation to:
1. My parents, Mr. Philipus Sahat Simanjuntak and Mrs. Merry Kumala who
believe in every part of me to be able reach my success future career. My
sisterhood, Serafina Sary, Marcelina Marlin and Gabrielle Edenia with their
husband who always support me to past the university life earlier.
2. My life partner, Geraldo Risa Maranatha Purba, who always stay in every
moment I need shoulder for tears of sadness, madness and happiness. Give a
hand to make me stand up, hold it and promise me to have better life future
together.
3. Supeni Anggraeni Mapuasari, SE.,MSc. as my thesis adviser, who look like my
mother in university and has given a lot of advises, knowledge, assistance
and the important behavior lessons from her experience that made me adore
her.
4. Misbahul Munir, Ak., MBA, CPMA, CA., Drs. Gatot Imam Nugroho, Ak., MBA.,
DR. Sumarno Zain, S.E., AK., MBA., Andi Ina Yustina, M. Sc., Ir. Yunita Ismail,
M.Si., Drs. Asep Supriatna, MBA., and Drs. Bruno Rumyaru, MA., who are all I admit
as Incredible Lecturers. I don’t even know how I express my gratitude because they
are my role model to become the real tomorrow’s leader. I can’t ask anything more just
wish they will remember me at the day we will meet again.
5. My best friends all the time: Mirah Diwayami, Rendy Sun, Kevin Ekaputra,
Devi Selena, Tasya Fristy, Wratsari Windra, Deviani, Paco Reinaldo, Bella
Yudithia, Gita Kemala. Thanks for the crazy laughter,support,care, joy and
love. It is great to having you guys by my side.
6. PUSC organization that allows me and taught me to be professional person
and behave out of my box! Two years passed in this organization
7. PUCATSO Family, thank you very much for enlighten my religious life. For
every prayer that only be the best weapon to fight.
viii
8. Pricewaterhouse Coopers who gave me the opportunities to have internship
where I could have the real experience of learning audit.
9. All my lecturer that I can’t mention one by one who taught me not only about
lesson but learning by their experience.
10. Accounting 2012 friends that fight together and support each other side by
side.
Last is for every single thing happens in my university life that makes me to
be at this time. I would like to give thanks for everything I have been through.
ix
TABLE OF CONTENTS
PANEL OF EXAMINERS ............................................................................................. ii
APPROVAL SHEET ...................................................................................................... ii
RECOMMENDATION LETTER ................................................................................ iii
DECLARATION OF ORIGINALITY ......................................................................... iv
ABSTRACT ..................................................................................................................... v
ACKNOWLEDGEMENT ............................................................................................ vii
LIST OF TABLES ......................................................................................................... xi
LIST OF FIGURE ........................................................................................................ xii
CHAPTER I ..................................................................................................................... 1
INTRODUCTION ....................................................................................................... 1
1.1. Research Background ..................................................................................... 1
1.2. Statement of Problem...................................................................................... 3
1.3. Research Scope and Limitations ..................................................................... 4
1.4. Research Objectives ........................................................................................ 4
1.5. Research Benefit ............................................................................................. 5
CHAPTER II ................................................................................................................... 6
LITERATURE REVIEW ........................................................................................... 6
2.1. Theoretical Review ......................................................................................... 6
2. 2. Previous Research ......................................................................................... 13
2.3. Theoretical Framework ................................................................................. 14
2. 4. Hypothesis .................................................................................................... 15
CHAPTER III ............................................................................................................... 18
RESEARCH METHODOLOGY ............................................................................. 18
3.1. Research Method .......................................................................................... 18
3.2. Operational Definitions................................................................................. 18
3.3. Population and Data Sampling ..................................................................... 22
3.4. Data Collection Method ................................................................................ 22
3.5. Data Analysis ................................................................................................ 23
CHAPTER IV ................................................................................................................ 27
ANALYSIS & EVALUATION ................................................................................ 27
4.1. Descriptive Statistic ...................................................................................... 27
4.2. Classic Assumptions Test Result .................................................................. 28
x
4.3. Multiple Linear Regression Analysis Result ................................................ 34
CHAPTER V ................................................................................................................. 41
CONCLUSION AND RECOMMENDATION ....................................................... 41
5.1. Conclusion .................................................................................................... 41
5.2. Recommendation .......................................................................................... 42
REFERENCES
APPENDIX I
LIST OF MANUFACTURE ENTITIES – SUB CONSUMER GOODS LISTED IN
INDONESIA STOCK EXCHANGE 2010-2014
APPENDIX II
SAMPLE’S DATA FOR EACH VARIABLE
xi
LIST OF TABLES
Table 2. 1. Previous Research ........................................................................................ 13
Table 3. 1 Measurement of Independent Auditor’s Quality Variable ............................. 21
Table 4. 1. Descriptive Statistic of Research Variables ................................................. 27
Table 4. 2. One-Sample Kolmogorov- Smirnov Test .................................................... 30
Table 4. 3. Coefficient Correlation of Multicollinearity Test ........................................ 31
Table 4. 4. Collinearity Statistics of Independent Variables .......................................... 31
Table 4. 5. Result of Runs Test ....................................................................................... 33
Table 4. 6. T-Test Result ................................................................................................ 34
Table 4. 7. F-Test Result ................................................................................................ 39
Table 4. 8. Coefficient of Multiple Determination Result ............................................. 40
xii
LIST OF FIGURE
Figure 2. 1. Framework Describing the Relationship between the Independent Variable
and Dependant Variable ............................................................................... 15
Figure 4. 1. Histogram Graph of Normality Test ........................................................... 28
Figure 4. 2. Probability Plot of Normality Test .............................................................. 29
Figure 4. 3. Scatterplot Graph of Heterocedasticity Test ............................................... 32
Figure 4. 4. Framework Describing the Relationship between the Independent Variable
and Dependant Variable ............................................................................... 36
1
CHAPTER I
INTRODUCTION
1.1. Research Background
The Indonesian entities require the accounts of all public entities to be audited by
qualified accountant. In addition, The Indonesia Stock Exchange concerns the lag
issuing audited annual report seriously. This is a caution for directors of the
entities to do their responsibility by maintaining appropriate standards of
corporate responsibility and accountability. The lag of the report has a close
association with the audit functions. This is because the financial statements
cannot be issued until an audit has been duly performed and concluded (Johnson,
1998).
Based on Kieso,et,al.(2011) the information of financial statements has relevant
to users if it can influence or effect the difference to their decision making.
Therefore timeliness of information is absolutely needed before the information
loses its capacity to influence a user’s decisions. This statement has the same
opinion with Dogan, et al (2007) who said that the useful information for business
and economic decisions are prepared in financial statements. It is also important
for users, as every entities use the financial statements to assess the financial
condition and performance of related entities.
In 2014, the Indonesian Stock Exchange report there were 52 listed entities that
from 547 entities did not submit financial statement on time. It means 10%
companies’ were not submitting the financial statement to Badan Pengawas Pasar
Modal (BAPEPAM).
Timeliness is the permanent issue which annually exists between entities reporting
since a long time ago. Timeliness enhances the usefulness of information
otherwise it will less the value of economic. Audit report lag as well known as the
number of days from the accounting year end of entity and the audit report date
(Dibia & Onwuchekwa, 2013).The lag of disclosure of an auditor’s opinion on the
2
true and fair view of financial information may adversely affect investors’ interest.
In market shows that audit report lag affects the investors’ chance of being
defrauded and the degree of uncertainty investment (Standish, 1975).
Concerning in Indonesia, all entities listed in Indonesia Stock Exchange are
obligated to report the financial statements audited to the public. This policy is
stated on Indonesia State Regulation No 8 concern about stock market, decision
made from Head of BAPEPAM regarding financial statements report periodically
and decision made from Head of Stock Market Supervisor number: KEP-
346/BL/2011 which applied start from 30th September 2011. All the regulation
mentioned for entities which registered in Indonesia Stock Exchange to report
their financial statements audited on the next 90 days after year-end period
(BAPEPAM, 2011). In addition, the decision which came from Director of
Indonesia Stock Exchange also will fine the entities who late to publish their
annual financial statement. The fine are divided into three categorize; first
warning letter for 30 days is 2 Million Rupiah, second warning letter is 50 Million
Rupiah, third warning letter is 150 Million Rupiah, and the last warning for the
lateness more than 90 days will have suspend effect.
However, there were still many entities who late to report their financial
statements. In 2010 the total fined collected was 13,8 Million Rupiah. Moreover,
BAPEPAM already gave 54 written letters warning, 4 coagulation letters entities,
and 4 resign letters to entities. Therefore, this research is conducted to analyze the
factors that mostly affect the audit report lag which made entities late to report
their financial statement to BAPEPAM.
There are several factors can affect the length of time required by the auditors to
completing it is procedures (audit report lag). The first one is capital structure, in
this research the calculation use total of liabilities per equity. Capital Structure is
affecting the entities to give the financial statements audited. If the entity has
many liabilities, the entity liable report their financial statements audited faster in
order to convince their share holder to less the risk of decrease premium in return
on equity expected (Ahmed & Hossain, 2010). On the other hand, there is also a
possibility the entity which has many liabilities to delay their financial statements
audited in order disguise their risk of return on equity from their shareholder.
3
The second factor that perceived to have influence toward length of audit report
lag is entity size. Some researchers have different result of the influence of entity
size toward audit report lag either positive or negative (Modugu, 2012). Audit
report lag are inversely related to total assets (Courtis, 1976). Based on the size of
entity, the bigger operation of entity, the more substantial asset owned. It is also
the line of segregation of duties in the large entity size organized which make the
internal control is effective. In large entity the probability of errors and
misstatement will be lower and the entity will complete the audit of their account
earlier than smaller entity.
There have been some argument concerns not only about their internal of entity
but also the committee who audit the entity. The third factor that perceived to have
influence toward length of audit report lag is independent auditor’s quality. Since
the auditor is the subject who contributes directly to the field of financial
statements, the independent auditor’s quality determines the length establishments
of audit report lag.
Based on the above background, this research will examine the relationship
between capital structure, entity size, and independent auditor’s quality towards
the length of entity’ audit report lag. This research will focus on studying
Manufacture entities listed in Indonesia Stock Exchange from 2010 to 2014.
1.2. Statement of Problem
Audit report lag affects toward the range of days to submit entity financial report
to BAPEPAM. Commonly, BAPEPAM will fine entity who late to submit their
financial report and also many entities submit their financial report longer than
other entity. Therefore, the researchers would like to research and test the factors
that commonly perceived to have effect toward the length of audit report lag.
Based on problem identification, the problem would be broken down as followed.
4
a. What would be the influence of entity’ capital structure toward audit report
lag of Manufacture entities listed in Indonesia Stock Exchange?
b. What would be the influence of entity’ size toward audit report lag of
Manufacture entities listed in Indonesia Stock Exchange?
c. What would be the influence of independent auditor quality toward audit
report lag of Manufacture entities listed in Indonesia Stock Exchange?
1.3. Research Scope and Limitations
Research Scope and Limitations are needed to be the research boundaries. This
research scope and limitations are following;
1. The dependant variable on this research is Audit Report Lag, and the
independent variables in this research are Capital Structure, Entity Size and
Independent Auditor Quality.
2. The researcher limits the study only to manufacture entities sub consumer
goods who are listed in Indonesia Stock Exchange from 2010-2014.
3. Due to inability of the researcher to identify the date when auditors started to
perform audit process, the length of audit report lag is measures through the
length from the financial statement reporting date up to the signed auditor’s
report.
1.4. Research Objectives
Based on the preceding statement of problems, the researcher’ objective toward
this study are as followed;
a. To determine whether the capital structure of the entity have significant
influence toward the audit report lag.
b. To determine whether the entity’ size have significant influence toward the
audit report lag.
c. To determine whether the independent auditor quality have significant
influence toward the audit report lag.
5
1.5. Research Benefit
This research is expected to provide the following benefits;
a. For the researcher: this research will develop the knowledge and
understanding regarding efficiency and effectiveness of audit process factors
that cause audit report lag concern in entities listed on the Indonesia Stock
Exchange.
b. For companies and audit firms: this research will provide understanding
regarding the factors cause audit report lag in the entity. Therefore, the entities
and audit firm may minimize the possibility to occur audit report lag.
c. For other readers: this research will hopefully become an additional reference
in auditing knowledge.
6
CHAPTER II
LITERATURE REVIEW
2.1. Theoretical Review
2.1.1. Financial Statements Audit
International Accounting Standard (IAS) stated Financial Statements are a
structured representation of the financial position and financial performance of an
entity intended to meet the needs of users who are not in a position to require an
entity to prepare reports tailored to their particular information needs. Meanwhile,
financial statement audit means the elaboration of an entity’s financial statements
and delivering disclosure by an independent auditor.
Financial Statements are divided into four parts which are the statement of
financial position, the income statement or statement of comprehensive income,
the statement of cash flows, and the statements of changes in equity. Financial
statements will reformed as financial statements audit after auditor show the
fairness about the information with the notes disclosure and the auditor opinion.
(Boynton & Johnson, 2006).
Financial statement audit involves performing risk assessment in order to
understand the entity’s business and industry (Donald, Jerry, & Terry, 2011). The
goal of financial statement audit is reaching the objective of audit itself which is
to obtain reasonable assurance that the financial statements present fairly the
entity’s financial position, results of operations and cash flow in conformity with
the standards.
The result of financial statement audits are commonly distributed to important
wide users such as stockholders, creditors, regulatory agencies, and the general
public through the auditor report on financial statements. In Indonesia, the
financial statement audit is functioning to national securities markets. Lenders and
creditors are relies on financial statement audits to obtain assurance about the
7
reliability of information used to support lending decision because high quality
financial statement audit will reduce poor quality information when making a
variety of investment decisions. (Boynton & Johnson, 2006).
2.1.2. Audit and Audit Standards
According to The Report of the Committee on Basic Auditing Concepts of the
American Accounting Association (International Auditing & Assurace Standard
Board , 2012) defines auditing as:
“a systematic process of objectively obtaining and evaluating evidence
regarding assertions about economic actions and events to ascertain the degree
of correspondence between those assertions and established criteria and
communicating the results to interested users.”
Based on definition above the auditing process is a systematic process which the
result for the interested users, in this research the auditor needs to prepare the
financial statement audit which is one of the types of auditing. Financial statement
audit involves obtaining and evaluating evidence regarding entity’s presentation
of the financial position, results of operation, and cash flow for the purpose of
expressing an opinion whether the entity presented fairly in conformity with
accepted accounting principles.
Fairness of financial statements rated is based on the assertions contained in each
account presented in financial statements. In every cycle of audit process designs
management’s assertions in financial statements; existence, completeness, rights
and obligations, valuation, and presentation and disclosure. Relevant assertions
are those assertions that have meaningful bearing on whether a financial statement
account is fairly stated (Griffiths, 2005).
Besides the theoretical about audit definition and process, the government stated
the generally accounting principles accepted appropriate audit criteria for
assessing practices of reporting audited financial organization, so that the auditor
should carry out the work audit in accordance with auditing standards. Definition
8
of auditing standards is the size of the implementation of measures which are
general guidelines for auditors in conducting the audit.
Auditing standards contain the sense of a standard measure for the quality of
auditing services (Boynton & Johnson, 2006). Auditing standards are 10 standards
within 3 categories based listed in the Public Accountants Professional Standards
(SPAP) and Public Company Accounting Oversight Board (PCAOB) as follows;
a. General Standards are applicable to the auditor and audit firm and provide
guidance in selecting and training it’s professionals to meet public trust. The
general standards require the following;
1. The audit is to be performed by individuals having adequate technical
training and proficiency as an auditor.
2. Auditors are to be independent in their mental attitude in conducting the
audit (independence in fact) and be perceived by users as independent of
the client (independence in appearance).
3. The audit is to be conducted with due professional care which is a standard
of care that would be expected of reasonably prudent auditor.
b. Fieldwork Standards are applicable to the conduct of the audit and require that:
4. An audit is properly planned and supervised.
5. Auditors develop an understanding of the client’s controls as an important
prerequisite to developing specific audit tests.
6. Auditors obtain sufficient appropriate audit evidence by performing audit
procedures to provide a reasonable basis for the audit opinion being
provided.
c. Reporting Standards are applicable to communicating the auditor’s opinion
and require that:
7. The auditor will state explicitly whether the financial statements are fairly
presented in accordance with the applicable financial reporting framework,
which may be Generally Accepted Accounting Principles (GAAP) or
International Financial Reporting Standards (IFRS).
9
8. The auditor will identify in the auditor’s report, those circumstances in
which accounting principles have not been consistently observed in the
current period in comparison to the preceding period.
9. The auditor will review disclosures for adequacy, and if the auditor
concludes that informative disclosures are not reasonably adequate, the
auditor must so state in the auditor’s report.
10. The auditor will express an opinion on the financial statements as a whole
or state that an opinion cannot be expressed.
As the auditing standards stated and applied in Indonesia, it became clear that the
compliance audit process by the auditor can affect the length of the audit report
lag. However if the 10 standards are fulfilled by the auditor, it will increase the
result of audit quality but also it will make the audit process longer time. On the
other hand, if the auditor is not following the audit standards, it might make the
audit process shorter.
2.1.3. Audit Report Lag
Audit report lag is an open interval of the number of days from the end of the year
to date was recorded as the date of signature opinion in the auditor's report. Audit
report lag or audit delay is therefore defined as the number of days from the
accounting year end of a company and the audit report date (Dibia &
Onwuchekwa, 2013). The range time between the financial statements report with
independent auditors report date is indicate the length of time of completion of the
audit performed by the auditor.
In the auditor’s responsibility for assessing the fairness of entity’s financial
statement are not just an events and transactions that occur up to the balance sheet,
it is called as subsequent events. There are two specified events and transactions
that auditor also has the responsibilities; it has a material effect on the financial
statement and occur after the balance sheet date but prior to the issuance of the
financial statements and the auditor’s report (Griffiths, 2005). The subsequent
event has a direct impact of the financial statement because auditors must propose
adjustments to the client’s financial statements.
10
However if the subsequent events have not direct influence on the financial
statement report, then auditors require a footnote in the client’s financial
statements, which exactly led to longer time of the audit report lag. Moreover the
longer time of audit report lag, it will impact negatively to the entity because the
timeliness of publication of the financial statements information audited.
The classified lags of financial reporting into the following types (Dyer IV &
McHugh, 1975);
• Preliminary lag : the open interval of the number of days from the
year-end to the receipt of the preliminary final
statement by the stock exchange.
• Auditor’s signature lag : the open interval of the number of days from the
year-end to the date recorded as the opinion
signature date in the auditor’s report.
• Total lag : the open interval of the number of days from the
year-end to the receipt of the published annual
report by the stock exchange.
Audit report lag will effect to the information that will be published. According to
Abdulla (1996), the longer time needed to publish financial statement year-end; it
will also influence the decision from the investor. If this condition happens
constantly, it will decrease the productivity of the market. Therefore the value of
regulation is important to state the range of reporting date with the purpose to keep
the reliable and relevance regarding the information needed by the investor or any
business matter in share market.
2.1.4. Factors influence audit report lag
2.1.4.1. Capital Structure
Capital structure referred to the debt to equity ratio which is the ratio
between the total long-term debts to equity. Hence, this ratio views the
amount productivity of entity paid by debt or external parties with the
ability of the entity that described by capital. The debt ratio may
11
identifies the financial health of entity and improve focus to auditor that
the financial statements are less reliable. Due to debt ratios are normally
associated with high risk, the financial health of entity base on the
internal control or management. The higher debts of entity, the more
pressure will entity give to the auditor to finish the financial statement
audited to the creditor (Abdulla, 1996).
However, according to research Carslaw and Kaplan (1991) the
relationship between Debt-equity ratio with audit report lag is
ambiguous, which means that finance’ entity is normal to have high
capital structure, but if the debt is financed by non-financial entity, it
would be financial distress or suffer losses if its capital structure of the
entity is financed by debt.
2.1.4.2. Entity Size
The entity’s size is a scale which may classify entities into large or small
entities. The most two accounts which accountable to reflect the entity’s
sizes are assets and value of stock market. Based on Chairman of
BAPEPAM number: KEP.11/ PM/1997, small and medium-sized entities
are calculated by their assets (Wealth). The medium sized entities is a
legal entity if the total assets not more than one hundred billion, while
large entities are above than one hundred billion.
Lianto and Kusuma (2010) stated, the entity size has negative influence
through the audit report lag, which the calculation use total assets as base
of entity size. It means the larger entity, the shorter length of audit report
lag. There are some argument that explain the reason of negative
influence entity size toward audit report lag; the first reason is the larger
entity may have more strength of internal control thus it will reduce the
tendency to report errors financial and allow auditors to rely of the
documents from the entity (Carslaw & Kaplan, 1991), the second reason
is the larger entities will have more resources to pay fees that relatively
higher to audit to finish the audit process immediately, the third reason is
the larger entities will have bigger responsibilities to give the result of
12
financial statements audit to their investor, the regulatory capital and the
government thus will bring greater pressure to faster the audit process.
On the other hand, there is Susanto (2013) whom the result of his result
shows the entity size is not influence the length of audit report lag. Due
to the larger entities, the more account and event will affect the length of
audit report lag.
2.1.4.3. Independent Auditor Quality
Auditors are the important role engaged with audit economic actions and
event for individuals and legal entities (Boynton & Johnson, 2006). The
main objective of audit service is to give the opinion based on the fairness
of entity’s financial statements. Indonesia Stock Exchange (IDX) stated
the regulation KEP-305/BEJ/07-2004 article I.11 that Financial
Statements Audited incorporating the opinion which is signed by the
registered public accountant with BAPEPAM. Financial Statement of
listed entity must have been audited at least for the last three financial
years, financial statement audited for the last two years and the latest
interim audited financial statement (if any) obtain an unqualified opinion.
There are around 547 entities that are listed in the capital market and also
many private entities need financial statements audited. In Indonesia
there are a lot of audit firm who offer financial statements audit service
but different audit firm will also have different approach and
methodology to render the audit opinion on entity’s financial statements.
Thus it will influence the length of the entity’s audit report lag.
Public accounting firms are classified into four classification; which are
big four international firms, national firms, regional & large local firms,
and small local firms (Dibia & Onwuchekwa, 2013). Big four
international firms are the largest CPA firms around the world which
have branches throughout the world. In Indonesia, public accounting
firms that have affiliation with the big four international firms are as
follows;
13
KAP Osman Bing Satrio & Eny, an affiliation of Deloitte Touche
Tohmatsu
KAP Tanudiredja, Wibisana & Rekan, an affliation of
Pricewaterhouse Coopers.
KAP Purwantono, Sarwoko & Sandjaja, KAP, an affiliation of Ernst
& Young
KAP Siddharta & Widjaja, an affiliation of KPMG
The quality that offered by big four international firm demonstrate
performing independent audit service, including timeliness of preparing
entity’s audit report. As the big four international firm will also make the
shorter audit report lag because the well preparation in audit process.
2. 2. Previous Research
The researcher has observed about audit report lag from the following research;
Table 2. 1. Previous Research
Researcher
(Year) Title
Similar
Independent
Variable(s)
Result
Kadir,A.
(2011)
“Faktor-faktor yang
Berpengaruh
Terhadap Audit
Delay: Studi Empiris
pada Perusahaan
Manufaktur di Bursa
Efek Jakarta”
Capital
Structure
Capital Structure has
significant and
negative influence
toward the length of
audit report lag.
14
Hariani
(2014)
“Faktor-faktor
Pemengaruh Audit
Report Lag (Studi
Empiris Pada
Perusahaan-
Perusahaan di Bursa
Efek Indonesia”
Entity Size Entity Size has
significant and
negative influence of
audit report lag.
Indra &
Arisudhana
(2012)
"Faktor-Faktor yang
Mempengaruhi Audit
Delay Pada
Perusahaan Go
Public di Indonesia
(Studi Empiris pada
Perusahaan Property
& Real Estate di
Bursa Efek
Indonesia Periode
2007 - 2010)"
Independent
Auditor
Quality
Independent Auditor
Quality has
significant and
positive influence
towards the length of
audit report lag.
2.3. Theoretical Framework
The relationship model of capital structure, entity size, and independent auditor
quality as the independent variables toward audit report lag as the dependant
variable may be described by using the following framework.
15
Figure 2. 1. Framework Describing the Relationship between the Independent
Variable and Dependant Variable
2. 4. Hypothesis
According to the theoretical framework and previous research section above, the
hypotheses of this research are as followed;
2.4.1. Capital Structure
Capital Structure as defined as debt to equity ratio views the amount productivity
of entity paid by debt or external parties with the ability of the entity that described
by capital. Financial statement audit theory explains the important role of capital
structure in audit report lag. Lenders and creditors are relies on financial statement
audits to obtain assurance about the reliability of information used to support
lending decision because high quality financial statement audit will reduce poor
quality information when making a variety of investment decisions (Boynton &
Johnson, 2006). It explains that every debt from entities obligated to report to their
creditor which it is influence the audit report lag.
Capital Structure
Entity Size
Independent Auditor
Quality
Audit Report Lag
H1 (+)
H3 (-)
H2 (-)
16
The entities with the higher amount of capital structure will elaborate more about
notes of debt. One of the reasons is the entity with the high proportion of debt to
equity ratio tends to be related with financial distress (Ahmad & Abidin, 2008).
In addition, it will consume more time of audit process rather than an entity with
relatively low proportion of debt (Carslaw & S., 1991).
H1: Capital Structure influences positively significant toward the length audit
report lag.
2.4.2. Entity Size
Entity size has been monitored by investor, stock holders, and regulatory agency
so it can reduce the length of audit report lag. The big entity also has the asset that
can support the process of audit. The entity size can influence how important the
information of financial statements audit and also reflect the awareness internal
management entity that can make the process of audit report lag done well.
Carslaw and Kaplan (1991) have done research that the result is the entity size
have significant influence in the new-zealand listed entities. The result is same as
the Modugu (2012) which found the entity size has the significant influence
toward audit report lag because entity size measured by assets which means
worker, technologies and equipment of large entities with the good internal control.
The technologies-based operation within large entities will open more possibilities
to integrate across nations rather than small entities will usually face unique
challenge in the international area due their limited resources and capability
(Karagozolu & Lindell, 1998). As the technologies-based operation influence the
business process, the operation of entity achieve the standard to be able operated
internationally, therefore the entity will keep their reputation by report financial
statements audited on time.
17
A negative relationship between entity size and audit report lag is expected as the
larger entities may possess strong internal controls that the auditor can rely on and
reduce the amount of audit work necessary at year-end (Habib & Bhuiyan, 2011)
H2: Entity Size influences negatively significant toward the length of audit
report lag.
2.4.3. Independent Auditor Quality
Independent auditor quality is commonly expressed as the variable of influence
audit report lag because external auditor is the parties that directly prepare the
audit report. Some researcher mention the big four international firm have better
in programming to advance technologies and specialist staff to complete the audit
report earlier rather than other audit firm. Independent auditor quality is related to
the audit and audit standard theories which mention the 10 audit standards that
must be done when conducted the audit process.
Independent auditor quality have significant influence toward audit report lag as
the larger audit firm expected to be less have audit report lag, work efficiency, and
have greater flexibility in scheduling to complete audit in time (Mohammad-Nor.
& Wan-Hussin, 2010). Based on Dibia (2013) stated the Independent auditor
quality have negative influence toward audit report lag as the larger audit firm
have incentive to finish their audit work quicker in order to maintain their
reputation.
H3: Independent auditor’s quality influences negatively significant toward the
length of audit report lag.
18
CHAPTER III
RESEARCH METHODOLOGY
3.1. Research Method
The researcher will use quantitative research method in conducting the research.
Quantitative research is a method use numbers to prove or disprove a notion or
hypothesis. The quantitative method provides fundamental connection between
empirical observation and mathematical expression of quantitative relationship.
This research focuses on analyzing the relationship between 3 (three) independent
variables to the dependent variable, which is the length of audit report lag. This
research will use multiple regression analysis for the correlation between the
independent variables and the dependent variable. The research objects are
Manufacture entities listed in Indonesia Stock Exchange 2010 to 2014.
3.2. Operational Definitions
3.2.1. Dependent Variable
Dependent Variable is the main idea to be measured by the factors in the research.
Dependent Variable in this research is audit report lag. Audit report lag is the
range time between the date financial statements year end until the date of
financial statement audit (Habib & Bhuiyan, 2011). The range between dates of
financial statements with financial statement audit identifies the performing audit.
The audit process will influence the timeliness of publication financial statement
audit information.
19
The measurement of dependent variable use Ratio Scale. Ratio measures are
formally identical to interval measures with the exception that zero in the former
represents a complete absence of the quantity in question (Stevens, 1946). The
result of this calculation is length of days although the categorize of audit report
lag is the length days more than 90 days, this calculation will give the exact range
of days and the measurement of days is constant not conditionally that will refers
to Nominal Scale or Interval Scale. In this research the length of audit report lag
will measured by following model;
LAG = Auditor’s signature date – Financial Reporting date .
Where;
LAG : Length of audit report lags of year.
Auditor’s Signature Date : The date when financial statement audit signed by
the auditor in year.
Financial Reporting Date : The financial report date of year.
3.2.2. Independent Variables
Independent variables influence dependent variables, which positively or
negatively. In this research, independent variables with the following;
3.2.2.1. Capital Structure
Variable capital structure will be stated as DER. Variable capital structure
measured with comparison between entity’s liabilities with the entity’s
equity (Ahmad & Abidin, 2008).
DER = Total Liabilities
Total Equity
20
The debt to equity ratio may reflect the financial health of entity. Thus the
high ratio will impact to high risk which will increase the focus of auditor
to perform the audit.
3.2.2.2. Entity Size
Variable independent entity size will be stated as SIZE. Entity size is the
variable to measure large or small the entity. In this research the entity size
will use total assets as the formula (Pham, Dao, & Brown, 2014).
SIZE = Ln(Total Asset)
The natural log of total Assets uses Ratio scale. The result of this variable
will give the exact number or value that can explain how large the entity
and the influence to their audit process.
3.2.2.3. Independent Auditor Quality
Variable independent auditor quality will be stated as IAQ. Independent
auditor quality is the variable to measure the quality of audit process and
approach used by the auditor to obtain and evaluate the evidence regarding
the assertions about event and transaction and communication the result to
interested users. For the top big four accounting firms, the weights is 1, for
accounting firm other than big the big four firms will weighted 0 (Ahmed
& Hossain, 2010).
21
Table 3. 1 Measurement of Independent Auditor’s Quality Variable
Rank Firm’s Name Weight
1 PricewaterhouseCoopers 1
2 Deloitte 1
3 Ernest&Young 1
4 KPMG 1
Public Accounting Firm Other
Than Above
0
In this research use dummy variable to measure the Independent Auditor
Quality because it refers to nominal scale which the purpose of nominal
scale is to categorize the value and has no number appears. The Rank of
this categorization would express the extent to which categorize agreed in
their value (Freelon, 2013). In this variable the value is the quality of
independent auditor.
3.2.3. Model Development
In this research, the measurement will be use multiple linier regression which is
the common statistic method in order to observe the relation between dependent
variable with independent variable. Concern in this research will measure the
impact of capital structure, entity size, and independent auditor quality toward
audit report lag through the following model (Habib & Bhuiyan, 2011);
LAGt= β0+ β1DERt + β2SIZEt+ β3 IAQt
+Et
22
Where;
LAG : Lengths of audit report lag in year t
β0 : Constanta
β1 – β3 : Regression Coefficients
DER : Capital Structure in year t
SIZE : Entity Size in year t
IAQ : Independent Auditor’s Quality in year t
3.3. Population and Data Sampling
In this research population used are all the manufacture entities listed in Indonesia
Stock Exchange (IDX) in years; 2010, 2011, 2012, 2013, and 2014. Data sampling
used is purposive sampling method which the criteria are;
1. Entities that listed in Manufacture Entities sub Consumer Goods
2. Entities which report financial statement annually (year- end 31 December)
3. Entities which has positive profit
4. Entities that reach the information needed for this research
3.4. Data Collection Method
In this research, the researcher will collect data from secondary resources. The
secondary resources will be financial statements from manufacture entities sub
Consumer Goods which are listed in Indonesia Stock Exchange (IDX) that
annually been audited in 2010, 2011, 2012, 2013, and 2014.
23
3.5. Data Analysis
3.5.1. Descriptive Statistic
Descriptive statistic used for analyzing data to show the data sample without the
generalization phase. In this research will show total data, average, minimum
capacity & maximum capacity, and deviation standard.
3.5.2. Classic Assumption Test
In purpose to select the regression model of proportional data, thus this research
need classic assumption test. Following are the four classic assumption test that
will be performed (Hair, Black, Enderson, & Babin, 2010);
Normality Test
Normality Test is the assumption to test the regression model, or any residual
value that has uncommon distribution. The proper regression model has
common distribution data or near to common. Normally test can be done by
graphic analysis and statistic analysis. In this research, normality test would
be done by Kolmogorov-Smirnov Test.
Multicollinearity Test
Multicollinearity test is the assumption to test if there were any regression
model has correlation between independent variable. The proper regression
model should have no correlation between independent variable. In this
research multicollinearity test would be done by Tolerance Value (TOV) and
variance inflation factors (VIF). Both of value show every independent
variable that explained by other independent variable.
24
Heteroscedasticity Test
Heteroscedasticity test is the assumption to test regression model has different
variance. If the variance of residual same, it is called as homocedasticity. The
proper regression model has same variance or homocedasticity.
In this research heteroscedasticity test would be done by scatterplots graph
between prediction value of dependent variable (ZPRED) and the residual
(SRESID).
Autocorrelation Test
Autocorrelation test was conducted to test whether the regression model has
a linear correlation between errors in period t with error in period t-1 (previous
year). If there is any correlation, there may be a problem arises to
autocorrelation.
Autocorrelation appear due to the successive observations over time are
related to each other. This problem arises because the residual (error bully) is
not free from one observation to observation that is often found in
others .series data time or time series "disturbance" on an individual / group
tends to affect the "disturbance" at the individual / group on the same. Model
good regression is a regression that is free from autocorrelation. In order to
detect the presence or absence of autocorrelation, this research will use Runs
Test.
25
3.5.3. Hypothesis Test
This research use classical linear regression model in order to estimate and test
the hypothesis, the estimator will be ordinary least square (OLS). It can be use if
the four classic assumptions had performed in order to ensure that the data have
fulfilled those classic assumptions beside independent auditor quality. The
Independent auditor quality will use dummy variable to quantify the variables.
The hypothesis test will performed by two methods; t-test to analyze the extent of
each independent variables influence toward the dependent variable and f-test to
evaluate whether all independent variables simultaneously affect the dependent
variable. The hypothesis’ objective would be;
Testing hypothesis about an individual partial regression coefficient
(T-test);
Testing the overall significance of the estimated multiple regression
model (F-test);
Followings are statistic notation of each hypothesis that will be tested through t-
test.
H1: Capital Structure influences positively toward the length of audit report lag.
H0: β1 ≤ 0
Ha: β1 > 0
H2: Entity Size influences negatively toward the length of audit report lag.
H0: β2 ≥ 0
Ha: β2 < 0
H3: Independent Auditor Quality influences negatively toward the length of audit
report lag.
H0: β3 ≥ 0
Ha: β3 < 0
26
F- Test will employ in order to prove whether one or more independent variables
have significant influence towards dependent variable. The hypotheses that will
be tested through F- Test is followed.
H0 : β1 = β2 = β3 = 0
Ha : βi ≠ 0, for at least one i, i = 1 – 3
3.5.4. Coefficient of Determination (R2) analysis
The aim of R2
analysis is to determine the dependent variable variation that is
explained by independent variables variation. As this research use 3 independent
variables then the determination used adjusted R2. The closer value to 1, it means
the independent variables is considered can explain the dependent variable.
27
CHAPTER IV
ANALYSIS & EVALUATION
4.1. Descriptive Statistic
The following table shows descriptive statistic result of the dependant variable
and independent variable of this research;
Table 4. 1. Descriptive Statistic of Research Variables
Descriptive Statistics
N Minimum Maximum Mean Std.
Deviation
DER 120 104.00 2,283.00 713.8167 510.59571
SIZE 120 12,664.00 30,151.00 23,139.0833 5,371.50719
IAQ 120 .00 1.00 .5417 .50035
LAG 120 -37.00 106.00 73.2333 13.20474
Valid N
(listwise) 120
Based on Table 4.1., it is shown that the maximum value of audit lag (the
dependant variable) is 106, which means the longest audit lag in 24 entities in this
research is 106 days. The longest audits lag views that entities which occurred
within the sample exceeded the deadline of financial statement audit report
submission regulation made by BAPEPAM. Besides that, the minimum value of
audit lag is -37.00 which means the shortest audit lag performed has been finished
37 days earlier before the entity’s reporting date. Then the average length of audit
lag within 24 entities in this research sample is 73.233 days. The value of average
audit lag means that the average’s audit delay is relatively long.
28
Table 4.1. shows that the minimum value of capital structure in the sample is
104.00, which means the most leveraged sample does not even have adequate
capital to cover all of its liabilities. On the other hand, the mean value of capital
structure is 713.816 which explain that the samples in average have not good
solvency.
The minimum value and maximum value of entity size respectively are 12,664.00
and 30,151.00 which means the largest entity size is 30,151.00 and the smallest
on the entity size value is 12,644.00. The mean value of entity size is 23,139.0833,
which means the average entity has value around 23,139.0833.
The minimum value and maximum value of independent auditor’s quality shown
in table 4.1. are 0 and 1 respectively due to the dummy variable had operational
in the variable. The mean value is 0.54, it means half of entities sample of this
research use big four as their auditor.
4.2. Classic Assumptions Test Result
4.2.1. Normality Test Result
The distribution of variables has to be normal, normality test ensured the variables
distributed normally. When all data have normal distribution, the residual will also
be distributed normally and independently. In this research, the histogram graph
of normality test and probability plot of normality test used to evaluate normality
assumptions as follow;
Figure 4. 1. Histogram Graph of Normality Test
29
Figure 4. 2. Probability Plot of Normality Test
Based on Figure 4.1. shows the residual value is distributed in not accordance with
the normal pattern shaped like a mountain. The peak position is on the right in the
middle position and the lowest data is on the left and the right following the normal
distribution line but the better histogram graph is when the skewness and kurtosis
near 0. However, in order to evaluate the normal distribution need probability plot
analysis to evaluate the normal distribution of data because the histogram graph
may mislead the judgment (Ghozali, 2013).
Figure 4.2. is the probability plot of normally test. The result of the test is the
residual data is distributed normally since the pattern is accordance with the
diagonal line, which means the normal distribution..
There is also statistical test should be done in order to ensure the normal
distribution of the research data. The researcher used Kolmogorov-Smirnov Test
to complement the previous graph analysis, which result can be seen in Table 4.2.;
30
Table 4. 2. One-Sample Kolmogorov- Smirnov Test
Based on table 4.2., the result of Kolmogorov- Smirnov Test shows the
significance probability value of unstandardized residual is 0.426 which means
the residual value distribution is normal. The exceed standard error (𝛼) is 0.05 and
this indicates the result is not significant at 𝛼 = 5%. In conclusion, the research
data have normal distribution.
4.2.2. Multicollinearity Test Result
Multicollinearity Test should be done in order to prove there is not any
relationship between independent variables. The proper regression model should
have not any correlations among the independent variables. Multicollinearity
assumption can be identified by tolerance value (TOL) and variance inflation
factor (VIF) (Ghozali, 2013). The result of TOL and VIF are in Table 4.4. In
addition, the extent of correlation between each variable can be seen in Table 4.3.;
One-Sample Kolmogorov-Smirnov Test
Unstandardized
Residual
N 120
Normal Parametersa,b
Mean 0E-7
Std.
Deviation 11,94073488
Most Extreme
Differences
Absolute ,080
Positive ,041
Negative -,080
Kolmogorov-Smirnov Z ,876
Asymp. Sig. (2-tailed) ,426
a. Test distribution is Normal.
b. Calculated from data.
31
Table 4. 3. Coefficient Correlation of Multicollinearity Test
Based on Table 4.3., All of the independent variables have low correlation among
each variables. The degree of confidence is less than 0.95 (95%). Hence, the
highest correlation shown in table 4.3. is only 0.290, which means there is positive
correlation of 29% between audit lag and capital structure.
Table 4. 4. Collinearity Statistics of Independent Variables
Based on Table 4.4. All TOL values are higher than 0.05, which means there is no
independent variables that are correlation among one to another for more than
95%. Meanwhile, all VIF values are not higher than 10, which means there is no
multicollinearity exist among all independent variables within the model
Correlations
LAG DER SIZE IAQ
Pearson
Correlation
LAG 1,000 ,290 -,232 -,206
DER ,290 1,000 -,196 -,103
SIZE -,232 -,196 1,000 -,326
IAQ -,206 -,103 -,326 1,000
Coefficientsa
Model Unstandardized
Coefficients
Standardized
Coefficients
t Sig. Collinearity
Statistics
B Std.
Error
Beta TOL VIF
1
(Constant) 89,377 6,497 13,757 ,000
DER ,005 ,002 ,207 2,376 ,019 ,931 1,075
SIZE -,001 ,000 -,281 -3,072 ,003 ,840 1,190
IAQ -7,306 2,383 -,277 -3,066 ,003 ,865 1,156
a. Dependent Variable: LAG
32
4.2.3. Heterocedasticity Test Result
Heterocedasticity Test is an assumption to prove the dissimilarity of one to another
observation. Heterocedasicity has opposite assumption which is homocedasticity.
Homocedasticity is the constant variance of residual. In this research the
heterocedasticity test will use the scatterplots graph between prediction value of
dependant variable (ZPRED) and the residual (SRESID) as the figure 4.3. shown;
Figure 4. 3. Scatterplot Graph of Heterocedasticity Test
According to Figure 4.3. shows the scatterplot graph between ZPRED and
SPRESID is no constant pattern. The Y axis is the standardized predicted Y, on
the other hand the X axis is the standardized residual. It is also shows directly that
the dots are distributed randomly above and under on Y axis.
33
4.2.4. Autocorrelation Test Result
Autocorrelation Test is the correlation between values of the process at different
points of time. In order to determine the autocorrelation exists within the sample
of this research, autocorrelation test will be use Runs Test. The result of runs test
is on the table 4.5;
Table 4. 5. Result of Runs Test
Based on Table 4.5., the test value is 1.548 with the probability 0.27. Since the
probability is higher than 0.05, means the research data do not have any
autocorrelation. In conclusion, there is no autocorrelation exist within the sample
of this research.
Runs Test
Unstandardized
Residual
Test Valuea 1,54835
Cases < Test Value 60
Cases >= Test Value 60
Total Cases 120
Number of Runs 67
Z 1,100
Asymp. Sig. (2-tailed) ,271
a. Median
34
4.3. Multiple Linear Regression Analysis Result
4.3.1. T-Test Result
After the classical assumption performed and the samples are consider as proper
sample, then the research can proceed to hypothesis testing. The hypothesis test
use T-Test. In order to analyze the extent of each variable’s influence toward
dependant variable, which is the length of audit lag, T- Test will show the result.
This research use t- table that has value 1.65810 which resulted from the degree
of confidence 116 (the formula came from 120 samples – 3 independent variables
– 1 dependent variables) and the standard (𝛼) is 0.05 and this indicates the result
is not significant at 𝛼 = 5%. The result of T- Test will be shown in Table 4.6;
Table 4. 6. T-Test Result
According to Table 4.6., the equation model to represent the influence of capital
structure, entity size, independent auditor’s quality toward audit report lag is
formulated as the following equation;
LAG=β0+ β1DER+ β2SIZE+ β3 IAQ
LAG= 89.377+0.005 DER –0.001 SIZE – 7.306 IAQ
Coefficientsa
Model Unstandardized
Coefficients
Standardized
Coefficients
T Sig.
B Std. Error Beta
1
(Constant) 89.377 6.497 13.757 .000
DER .005 .002 .207 2.376 .019
SIZE -.001 .000 -.281 -3.072 .003
IAQ -7.306 2.383 -.277 -3.066 .003
a. Dependent Variable: LAG
35
β1=β1 as the coefficient of capital structure has value of 0.005 means
if the entity size and independent auditor quality have zero value,
then the audit report lag will increase for 0.005 in every 1 point
increase of capital structure and in every decrease of capital
structure the length of audit report lag will decrease for 0.005
days. Capital structure has positive correlation with the length of
audit report lag.
β 2=β2 as the coefficient of entity size has value of -0.001. It means
that every 1 point increase in entity size, the length of audit report
lag will decrease 0.001 days with the assumption that the other
variables have zero value. The negative sign on entity size means
the entity size has negative correlation with the length of audit
report lag.
β 3=β3 as the coefficient of Independent Auditor Quality is -7.306 in
the regression model. It means there is negative correlation
between Independent Auditor Quality with audit report lag. It
means every 1 point increase in Independent Auditor Quality
will decrease the length of audit report lag if the assumptions of
other variables are zero. On contrary if there is 1 point decrease
Independent Auditor Quality will be increase by 7.306 days.
T-test performed to test the coefficient and significance of independent variable to
dependant variable that can be seen at the significant probability (Sig.) in the
figure coefficient output. The significance level is 0.05 if the value of significant
is bigger than 0.05, then H0 is accepted. On the other hand, if the significant value
less than 0.05, then the H0 is rejected. For the main explanation about each
independent variables will be discussed below;
36
Figure 4. 4. Framework Describing the Relationship between the Independent
Variable and Dependant Variable
4.3.1.1. Capital Structure Hypothesis Test Result
The first hypothesis drawn regarding the variables is as follows.
H0: β1 ≤ 0
Ha: β1 > 0
Based on Table 4.6., the value of capital structure coefficient is 0.005, which
means the variables influence positively toward the length of audit lag. The t value
is exceeding the t-table of 1.65810 (2.376>1.65810). The capital structure variable
is significant of 0.019 implies that β1 is significant at 𝛼 = 5% (0.019 <0.05). Thus,
H0 is rejected and Ha is accepted.
In order to elaborate more about the explanation capital structure, as the brief
explanation at β1 under Table 4.6., capital structure’s coefficient of 0.005 implies
that every 1 point increase will result in 0.005 days longer length of audit report
lag. The positive effect of capital structure will make longer length of audit report
lag. As the capital structure is the indicator of financial health, thus if the amount
of capital structure is higher will effect to value of the entity. In addition, capital
structure ratio as debt to equity ratio often use as a debt covenant for entity to
Accepted H3 (-)
Accepted H2 (-)
Accepted
Entity Size
Independent Auditor
Quality
Audit Report Lag
H1 (+)
Capital Structure
37
attain debt financing from creditors. Debt covenant agreement use to be regulator
between entity and the creditor to make the entity obey in having debt financing
from the creditor, such as meeting particular ratio limit. The entity will also get
penalties or declared as default on the loan of being borrowed if the entity violates
agreement of debt covenant.
Auditor must ensure all components of capital structure or debt of ratio are free
from manipulation and met all the assertions. Previous research done by Ahmed
& Hossein (2010) proves that capital structure has positive relationship with the
audit report lag. An entity that has higher debt to equity ratio will make longer
length of audit report lag because more information needed by auditor rather than
an entity that has smaller debt to equity ratio.
4.3.1.2. Entity Size Hypothesis Test Result
The first hypothesis drawn regarding the variables is as follow.
H0: β2 ≥ 0
Ha: β2 < 0
Based on Table 4.6., the value of capital structure coefficient is -0.001, which
means the variables influence negatively toward the length of audit lag. The t
value is not exceeding the t-table of 1.65810 (-3.072<1.65810). The capital
structure variable is significant of 0.003 implies that β1 is significant at 𝛼 = 5%
(0.003<0.05). Thus, H0 is rejected and Ha is accepted.
Entity’s size coefficient of -0.281 implies that every increase 1 point in a entity’s
size, the length of audit lag will reduced 0.281 day. The result is same with the
first assumption that entity’s size relates negatively and influence significantly
toward the length of audit report lag. Previous research conducted by Owusu-
Ansah (2000) also proved that entity’s size relates negatively toward the length of
audit report lag.
38
The negative relation of entity’s size is measured by natural log of total assets.
The larger entity will have more assets that make stronger internal control to
provide the fairly presented financial statements and the auditor relies on the data
(Carslaw and Kaplan, 1991). Moreover the larger entity will have high tendencies
to publish the report early because it monitored by their investors, government and
any related parties that push to publish audit report earlier.
4.3.1.3. Independent Auditor Quality Hypothesis Test Result
The first hypothesis drawn regarding the variables is as follow.
H0: β3 ≥ 0
Ha: β3 < 0
Based on Table 4.6., the value of Independent Auditor Quality coefficient is -
7.306, which means the variables influence negatively toward the length of audit
lag. The t value is not exceeding the t-table of 1.65810 (-3.066<1.65810). The
Independent Auditor Quality variable is significant of 0.003 implies that β4 is
significant at 𝛼 = 5% (0.019 <0.05). Thus, H0 is rejected and Ha is accepted.
In order to elaborate more about the explanation independent auditor quality, as
the brief explanation at β3 under Table 4.6., Independent auditor’s quality
coefficient of -7.306 means every 1 point of increase in the variable, the length of
audit lag will decrease by 7.306 days. The result of independent auditor quality is
same with the first assumption that the relation of variable negative with audit lag
which means the higher the quality of independent auditor, the shorter the length
of audit lag. The independent auditor divided into two groups which are the big 4
audit firms and the non-big four audit firms. The big 4 four international firm
maintain their good reputation by performing independent audit service and strict
about the timeliness of entity’s audit report. A previous research conducted by
Leventis et al. (2005) also proved big four audit firms will shorter audit process
rather than other audit firms.
39
The significant result of independent auditor quality means the process of audit
will influence the length of audit lag. The big four international audit firm
measured rank in Indonesia by the total revenue. If we observe about total revenue,
the total revenue came from the entity itself, and the larger entity will use audit
firm as they believe the audit firm will performed good in their complexity
accounts. The larger entity will not give their financial statements to the random
audit firm because if the larger entity give to random audit firm there is high risk
to have audit report lag and it will influence to their reputation into the investor
and the other entity that smaller than the entity. In conclusion, the independent
auditor quality influence significantly through the audit report lag.
4.3.2. F- Test Result
In order to prove whether one or more independent variables have significant
influence toward the dependant variable the researcher use F-Test. The result of
F- Test is shown in the following table;
Table 4. 7. F-Test Result
The first hypothesis drawn is as follows.
H0 : β1 = β2 = β3 = 0
Ha : βi ≠ 0, for at least one i, i = 1 – 3
ANOVAa
Model Sum of Squares Df Mean Square F Sig.
1
Regression 3782,310 3 1260,770 8,620 ,000b
Residual 16967,157 116 146,269
Total 20749,467 119
a. Dependent Variable: LAG
b. Predictors: (Constant), IAQ, DER, SIZE
40
Based on Table 4.7., the F value of this research is 8.620 with significance of 0.
The degree of freedom 117, number of independent variables 3, and significance
level is 5%. The F-Table Value in This Research is 3.07 is lower than the F-value
8.620. The significance value is 0 is below than 0.05. In conclusion, one of more
independent variables has significant influence toward dependant variable, which
is the length of audit lag. Therefore, H0 is rejected and Ha is accepted.
4.3.3. Coefficient Multiple Determination (R2) Result
Coefficient Multiple Determination analysis tested in order to show the result
whether all independent variables can explain the dependent variable. The
analysis calculates the proportion of dependent variable which is explained by
independent variables. The result of coefficient of multiple determination of this
research is shown in Table 4.8.
Table 4. 8. Coefficient of Multiple Determination Result
Based on Table 4.8., the adjusted R square value is 0.161. The number means that
the Capital Structure, Entity Size, and Independent Auditor Quality are able to
describe about audit report lag by 16.1%. The rest 83.9% is determined by other
than variable used in this research.
Model Summaryb
Model R R Square Adjusted R
Square
Std. Error of the
Estimate
1 ,427a ,182 ,161 12,09416
a. Predictors: (Constant), IAQ, DER, SIZE
b. Dependent Variable: LAG
41
CHAPTER V
CONCLUSION AND RECOMMENDATION
5.1. Conclusion
This research analyzes about the influence of capital structure, entity size and
independent auditor quality toward the audit report lag. This research population
use manufacture entities in the section of consumer goods that listed in Indonesia
Stock Exchange. The selection of sample is using purposive sampling based on
some criteria. The range period is from the year 2010 until 2014. There are 24
entities with the total 120 samples.
The measurement of Capital structure is Debt to Equity ratio. Entity’s size is
measured by natural log of total assets. Independent auditor quality is measured
by dummy variable, the Big International Audit Firm is 1 and the other firm is 0.
Capital structure influence positively toward the length of audit report lag with the
coefficient 2.376 and the significant value is 0.019 which means the capital
structure contribute significant toward the length of audit report lag. The result of
this research has opposite result as the research conducted by Kadir (2011) that
capital structure has negatively significant toward the length of audit report lag.
This difference may appear as the different year was conducting research and the
sample used by the previous research. However, it has the same result with Ahmed
& Hossein (2010) that capital structure has positively significant toward the length
of audit report lag. The higher capital structure entities will consumed longer time
to complete the audit process the auditor should performed more detailed in audit
work.
On the other hand, Entity size influence negatively toward the length of audit
report lag with the coefficient -3.072 and the significant value is 0.003 which
means the entity size variable contribute significant toward the length of audit
report lag. The result of this research is opposite as the research conducted by
Susanto (2013) that entity size has positively and not significant toward audit
report lag as the previous research said the larger entity size the more activities
42
should be maintained by auditor. This research has same result with Owusu-Ansah
(2000) and Habib & Bhuiyan (2011) which entity size has negatively significant
influence toward the length of audit report lag. The larger entity, the more
effective internal control and asset that support the process of audit or the
misstatement of financial statement is low.
The last variable is Independent auditor quality influence negatively toward the
length of audit report lag with the coefficient -3.072 and the significant value is
0.003 which means the independent auditor quality variable contribute significant
toward the length of audit report lag. The result of this research is opposite as the
research conducted by Modugu (2012) that independent auditor quality influence
positively and not significant toward the length of audit report lag as the previous
research argue that quality of audit cannot be measured by the rank of big four
international as the rank of independent auditor measured by their revenue. This
research has same result with Leventis et al. (2005) and Pham et al. (2014) which
independent auditor quality is negatively significant influence toward the length
of audit report lag. The Big Four-International audit firm can employ a large
number of auditors with the supporting audit technologies that can minimize the
length of audit report lag.
This research proves independent variables which are Capital Structure, Entity
Size and Independent Auditor Quality influence statically significant toward
dependent variable which is Audit Report Lag.
5.2. Recommendation
Based on the research above and some limitations in this research, the researchers
would like to give some recommendation for the next research regarding audit
report lag, entities management, and auditors.
For the next research regarding audit report lag.
Since in this research the result variables of entity size and independent
auditor quality has influence negatively significant towards audit report lag,
it is better for the next researcher to use moderating variable among them.
43
Moderating variable is a third variable that affects strength of the relationship
between dependent variable and independent variables. In here the
moderating variable is Independent Auditor Quality. The larger entity size
perceived to hire big four accounting firm as their external auditor while the
big four accounting firm statically reduce audit report lag.
This research only use the Manufacture Entities sub Consumer Goods as the
sample which means the theory and result would only effect within
manufacture entities, it is better for the next researcher observe wide-large
sample in order to detect more about audit report lag.
This topic has been researched by many researcher internationally as the topic
of this research can be use outside of country, it is better for the next
researcher gain the knowledge more into the international journal. The next
research may also compare the source of international journal from local with
foreign country; it would easier to understand about the audit report lag and
the effect.
For entities.
The objective of auditing is to prove the financial statements from the entity
fairly presented. The fairly presented comes from the quality of evidence and
the internal control supports quality of evidence. Although the result from in
this research is the entity size has influence negative significantly, any size of
the entity should have strong internal control because as soon as the evidence
reflects the exist transaction, it will reduce the length of audit report lag.
For Auditors.
Since the independent auditor has negative influence on this research, it is
better for auditor keep the quality as their main reputation since the auditor
firm is directly in touch of the audit report lag.
REFERENCES
Abdulla, J. A. (1996). The Timeliness of Bahrain Annual Reports. Journal of Advances
in International Accounting , 9, 73-88.
Ahmed, A. A.-A., & Hossain, M. S. (2010). Audit Report Lag: A Study of the
Bangladeshi Listed Companies. ASA University Review, 4 (2), 1-8.
BAPEPAM. (2011). KEP-346/BL/2011: Concerning The Submission of Periodic
Financial Statement for Issuers or Public Companies. Retrieved August 20, 2014,
from
http://www.martinaberto.co.id/download/Peraturan_Bapepam/X.K.2_Penyampaian_
Laporan_Keuangan_Berkala_Emiten_atau_Perusahaan_Publik.pdf/
Boynton, W. C., & Johnson, R. N. (2006). Modern Auditing: Assurance Services and
Intergrity of Financial Reporting, 8th Edition. Chicago: John Wiley & Sons, Inc.
Carslaw, C., & S., K. (1991, Winter). An Examination of Audit Delay: Further Evidence
from New Zealand. Accounting and Business Research , 21-32.
Courtis, J. K. (1976). Relationship between timeliness in corporate reporting and
corporate attributes. Accounting and Business research , 45-76.
Dibia, N., & Onwuchekwa, J. C. (2013). Audit report lag. An examination of audit report
lag of companies quoted in the nigeria stock exchange , 8.
Dogan, M., Coskun, E., & Celik, O. (2007). Is Timing of Financial Reporting Related to
Firm Performance? – An Examination on Ise Listed Companies. International
Research Journal of Finance and Economics, 12, 220-233.
Donald, E. K., Jerry, J. W., & Terry, D. W. (2011). Conceptual Framework for Financial
Reporting. In Intermediate Accounting (pp. 2-78). United Stated of America: John
Wiley & Sons.
Dyer IV, J. C., & McHugh, A. J. (1975). The Timeliness of the Australian Annual Report.
Journal of Accounting Research, 13, 204-219.
Freelon, D. (2013). ReCal OIR: Ordinal, Interval, and Ratio Intercoder Reliability as a
Web Service. International Journal of Internet Science , 10-16.
Ghozali, I. (2013). Aplikasi Analisis Multivariate Dengan Program SPSS (7 ed.).
Semarang: Universitas Diponegoro.
Griffiths, P. (2005). Risk-Based Auditing. UK: Ashgate Publishing Ltd.
Habib, A., & Bhuiyan, M. B. (2011). Audit firm industry specialization and the audit
report lag. Journal of International Accounting, Auditing and Taxation , 32-44.
Hair, J. F., Black, W. E., Enderson, R. E., & Babin, B. J. (2010). Multivariate Data
Analysis (7th ed.). USA: Pearson.
Hariani, D. (2014). Faktor-Faktor Pemengaruh Audit Report Lag (Studi Empiris Pada
Perusahaan-Perusahaan di Bursa Efek Indonesia). Undergraduate Thesis .
IDX. (2015, April 10). Bursa Saham. Retrieved from
www.nerca.co.id/article/52481/payah-52-Emiten-Telat-Laporkan-Keuangan.
International Auditing & Assurace Standard Board . (2012). Handbook of International
Quality Control, Auditing Review, Other Assurance, and Related Service
Pronouncements. New York: International Federation of Accountants.
Indra, Sagita, N., & Arisudhana, D. (2012). Faktor-Faktor yang Mempengaruhi Audit
Delay Pada Perusahaan Go Public di Indonesia. Jurnal Bisnis dan Akuntansi , 1 (2).
Johnson, L. E. (1998). Further Evidence on the Determinants of Local Government Audit
Delay. Journal of Public Budgeting, Accounting and Financial Management , 375-
379.
Johnstone, K. M., Gramling, A. A., & Rittenberg, L. E. (2014). Auditing (9th Edition ed.).
(E. Joyner, Ed.) USA: South-Western Cengage Learning.
Kadir, A. (2011). Faktor-Faktor yang Berpengaruh Terhadap Ketepatan Waktu Pelaporan
Keuangan: Studi Empiris pada Perusahaan Manufaktur di Bursa Efek Jakarta. Jurnal
Akuntansi dan Manajemen, 12, 1-12.
Karagozolu, N., & Lindell, M. (1998). Internationalization of small and medium sized
technology-based firm: An exploratory study. Journal of Small Business Mangement ,
44-59.
Kieso, Donald, E., Weygandt, Jerry, J., & Terry, D. (2011). Intermediate Accounting
(IFRS Edition ed., Vol. 1). USA: Wiley.
Leventis, S., Weetman, P., & Caramanis, C. (2005). Determinants of Audit Report Lag:
Some Evidence from the Athens Stock Exchange. International Journal Auditing, 9,
45-58.
Lianto, N., & Kusuma, B. H. (2010). Faktor-faktor yang berpengaruh terhadap Audit
Report Lag. Jurnal Bisnis dan Akuntansi , 12, 2.
Modugu, P. K. (2012). Determinants of Audit Delay in Nigerian Companies. Research
Journal Finance and Accounting, 3, 6.
Mohammad-Nor., N. S., & Wan-Hussin, W. N. (2010). Corporate Gorvernance and Audit
Report Lag in Malaysia. Asian Academy of Management Journal of Accounting and
Finance, 6 (2), 57-84.
Owusu-Ansah, S. (2000). Timeliness of Corporate Financial Reporting in Emerging
Capital Markets: Empirical Evidence from the Zimbabwe Stock Exchange.
Accounting and Business Research, 30, 241-254.
Pham, T., Dao, M., & Brown, V. L. (2014). Investment Opportunities and Audit Report
Lags: Intial Evidence. Accounting and Finance Research, 3 (4).
Standish, P. M. (1975). Proposals for reform of Australian company financial disclosure
requirements. Australian Company Financing Reporting , 1-82.
Susanto. (2013). Faktor-faktor yang Mempengaruhi Audit Delay di Perusahaan
Manufaktur Bursa Efek Indonesia.
Stevens, S. S. (1946). On the theory of scales of measurement. International Journal of
Science , 677-680.
APPENDIX I
LIST OF MANUFACTURE ENTITIES – SUB CONSUMER GOODS LISTED IN
INDONESIA STOCK EXCHANGE 2010-2014
No Ticker Entity's Name
Food and Beverages
1 ADES Akahsa Wira
2 DLTA Delta Djakarta
3 ICBP Indofood CBP
4 INDF Indofood Sukses Makmur
5 MYOR Mayora Indah
6 ROTI Nippon Indosari
7 SKLT Sekar Laut
8 STTP Siantar Top
9 AISA Tiga Pilar Sejahtera
10 ULTJ Ultra Jaya
11 CEKA Wilma Cahaya Indonesia
Tobacco
12 GGRM Gudang Garam
13 HMSP HM Sampoerna
Pharmaceuticals
14 DVLA Darya-Varia
15 KLBF Kalbe Farma
16 KAEF Kimia Farma
17 MERK Merk
18 PYFA Pyridam
19 SQBB Taisho
20 TSPC Tempo scan
Cosmetics and Household
21 TCID Mandom Indonesia
22 MBTO Maritma Berto
23 UNVR Unilever Indonesia
Houseware
24 KICI Kedaung Indah
APPENDIX II
SAMPLE’S DATA FOR EACH VARIABLE
No Year DER SIZE IAQ LAG
1 2010 0.874 12.690 0 69
2 2010 0.194 20.379 1 82
3 2010 0.427 16.408 1 70
4 2010 0.902 17.672 1 70
5 2010 1.156 29.112 0 77
6 2010 0.248 27.066 1 56
7 2010 0.685 26.018 0 66
8 2010 0.451 27.199 0 96
9 2010 2.283 14.477 0 102
10 2010 0.542 28.327 0 83
11 2010 1.755 27.469 1 63
12 2010 0.444 17.241 1 87
13 2010 1.009 16.837 1 75
14 2010 0.333 20.566 1 59
15 2010 0.218 29.582 1 67
16 2010 0.488 28.136 0 84
17 2010 0.198 19.890 1 54
18 2010 0.303 25.334 0 59
19 2010 0.189 19.584 1 77
20 2010 0.363 28.909 0 82
21 2010 0.104 27.677 1 61
22 2010 1.849 24.961 0 59
23 2010 1.149 15.979 1 89
24 2010 0.344 25.177 0 66
25 2011 1.513 12.664 0 79
26 2011 0.215 20.361 1 87
27 2011 0.421 16.538 1 75
28 2011 0.695 17.797 1 75
29 2011 1.722 29.518 0 39
30 2011 0.389 27.355 1 72
No Year DER SIZE IAQ LAG
31 2011 0.743 26.090 0 75
32 2011 0.907 27.564 0 65
33 2011 0.959 15.094 0 103
34 2011 0.445 28.410 0 86
35 2011 1.033 27.437 1 72
36 2011 0.592 17.481 1 73
37 2011 1.876 16.777 1 76
38 2011 0.268 20.643 1 46
39 2011 0.270 29.744 1 69
40 2011 0.432 28.216 0 81
41 2011 0.183 20.186 1 54
42 2011 0.432 25.494 0 59
43 2011 0.196 19.706 1 75
44 2011 0.395 29.078 0 75
45 2011 0.108 27.754 1 62
46 2011 0.352 27.018 0 75
47 2011 1.848 16.165 1 90
48 2011 0.360 25.194 0 67
49 2012 0.861 12.872 0 67
50 2012 0.246 20.429 1 86
51 2012 0.487 16.696 1 70
52 2012 0.740 17.900 1 70
53 2012 1.706 29.748 0 87
54 2012 0.808 27.817 1 37
55 2012 0.929 26.244 0 70
56 2012 1.156 27.854 0 86
57 2012 0.902 15.168 0 87
58 2012 0.444 28.515 0 84
59 2012 1.218 27.658 1 70
60 2012 0.560 17.541 1 81
61 2012 0.972 17.083 1 73
62 2012 0.277 20.795 1 58
63 2012 0.278 29.874 1 67
64 2012 0.440 28.362 0 57
65 2012 0.366 20.160 1 46
66 2012 0.549 25.635 0 59
67 2012 0.221 19.800 1 74
68 2012 0.382 29.164 0 74
69 2012 0.150 27.863 1 64
70 2012 0.403 27.136 0 74
71 2012 2.020 16.299 1 84
72 2012 0.427 25.277 0 73
No Year DER SIZE IAQ LAG
73 2013 0.666 12.997 0 73
74 2013 0.282 20.581 1 86
75 2013 0.603 16.873 1 76
76 2013 1.048 18.173 1 76
77 2013 1.465 29.904 0 85
78 2013 1.315 28.231 1 48
79 2013 1.162 26.434 0 78
80 2013 1.118 28.016 0 86
81 2013 1.130 15.430 0 105
82 2013 0.395 28.665 0 83
83 2013 1.025 27.698 1 66
84 2013 0.726 17.743 1 76
85 2013 0.936 17.126 1 86
86 2013 0.301 20.897 1 57
87 2013 0.331 30.057 1 70
88 2013 0.522 28.536 0 50
89 2013 0.361 20.362 1 45
90 2013 0.865 25.889 0 69
91 2013 0.214 19.859 1 78
92 2013 0.400 29.319 0 76
93 2013 0.239 28.014 1 64
94 2013 0.356 27.140 0 76
95 2013 2.137 16.407 1 84
96 2013 0.329 25.311 0 62
97 2014 0.707 13.132 0 89
98 2014 0.298 20.715 1 86
99 2014 0.656 17.031 1 71
100 2014 1.084 18.269 1 71
101 2014 1.510 29.962 0 86
102 2014 1.232 28.393 1 89
103 2014 1.162 26.527 0 75
104 2014 1.080 28.162 0 86
105 2014 1.052 15.813 0 106
106 2014 0.288 28.702 0 89
107 2014 1.389 27.881 1 85
No Year DER SIZE IAQ LAG
108 2014 0.752 17.880 1 83
109 2014 1.103 17.161 1 77
110 2014 0.285 20.935 1 57
111 2014 0.266 30.151 1 71
112 2014 0.639 28.719 0 51
113 2014 0.294 20.390 1 58
114 2014 0.789 25.875 0 75
115 2014 0.245 19.945 1 72
116 2014 0.353 29.352 0 78
117 2014 0.444 28.248 1 64
118 2014 0.365 27.152 0 84
119 2014 2.105 16.474 1 86
120 2014 0.230 25.295 0 63
![Analizing the forum discussion[1]](https://static.documents.pub/doc/80x56/544f3558af7959c4068b6050/analizing-the-forum-discussion1.jpg)
