Content area
Full text
1. Introduction
Both audit report lag (ARL) and tax avoidance have attracted a great deal of attention in the recent accounting literature. Audit delay is a major and decisive component of the delay in the disclosure of financial and accounting information, and it is a means of observing the efficiency of the audit process (Givoly and Palmon, 1982). In this regard, several researchers have studied the determinants of audit delays in different countries and different contexts (Ashton et al., 1987; Ettredge et al., 2006; Kaaroud et al., 2020; Khlif and Samaha, 2014; Oussii and Boulila Taktak, 2018).
A neglected aspect in this stream of research is to investigate whether tax avoidance affects ARL. For instance, Crabtre and Kubick (2014) have examined the relationship between tax avoidance and the timeliness of annual earnings announcements. They have documented that there is a positive association between both variables in the US setting. Aside from this study that has dealt with tax avoidance and timely disclosure, we are not aware about any empirical paper that has investigated the relationship between tax avoidance and ARL in developing and emerging economies. Accordingly, we try to fill the gap in accounting literature by examining this relationship in an African setting, namely, South Africa, characterized by its economic growth and the development of its financial market. Furthermore, we examine whether auditor type moderates such an association.
ARL is defined as the number of days from fiscal year-end to the date of the auditor’s report, while tax avoidance (effective tax rate) is measured as total income tax expense divided by pretax book income. It is an inverse function of effective tax rate (Gaaya et al., 2017). Based on a sample of 45 companies over the 2010–2013, we find a positive (negative) association between tax avoidance (effective tax rate) and ARL. These results suggest that companies undertaking aggressive tax management to pay significantly lower effective rates, will increase audit risk which translates into more substantive tests leading to longer audit delays. Furthermore, the positive association between ARL and tax avoidance becomes insignificant for companies audited by non-Big 4 audit firms, while it remains positive and significant for those audited by Big 4 audit firms.
Our research makes the following contributions. First,...