Organizational complexity and audit report lag in GCC economies: the moderating role of audit quality

Abstract

Purpose

This study aims to investigate whether organizational complexity (hereafter firm complexity) increases audit report lag (ARL) in a unique environment of GCC countries.

Design/methodology/approach

The research study uses a panel data set of 6,084 firm-year observations of nonfinancial firms from GCC economies from 2009 to 2022. First, the study uses an ordinary least square estimator to examine the association of firm complexity with ARL. Second, for robustness purposes, the study applies the propensity score matching technique.

Findings

This research study finds that the firms’ complexity increases ARL. Supporting the argument that auditors respond to firm complexity with increased effort, the authors find a positive relation of firm complexity with ARL. This relationship is augmented by auditor change, auditors’ tenure, auditor-qualified opinion and adoption of IFRS. In addition, the authors also find that Big-4 and audit firm industry specialization curtail the positive impact of firm complexity on ARL.

Research limitations/implications

Firms in the GCC have less time to complete their audit and complex firms are likelier to have bigger ARLs. This study provided evidence regarding the curtailing effect of audit quality in GCC. Our findings suggest policymakers and reformers choose improved audit quality to reduce the possibility of larger ARL.

Originality/value

This study enriches the scholarship by presenting a mechanism for reducing the ARL of complex firms through higher audit quality. This study contributes to agency theory by emphasizing audit quality’s important role in emerging markets.

Citation

Khan, F., Abdul-Hamid, M.A.B., Fauzi Saidin, S. and Hussain, S. (2023), "Organizational complexity and audit report lag in GCC economies: the moderating role of audit quality", Journal of Financial Reporting and Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-03-2023-0113