Effect Of Disclosure Deficiencies In Internal Control Audit Delay

The Securities and Exchange Commission started the implementation of theSarbanes-Oxley Act (SOX) in June2003. Section409authorizes the SEC to compelreporting firms to rapidly disclose any information about material changes in theirfinancial condition or operations to the public. As a result, the SEC has phased-inaccelerated deadlines for filing Form10-Ks in2003. Because the implementation ofsection404have been increased significantly the audit delay, the PCAOB issuedAuditing Standards5in2007, which replaced Auditing Standards2(AS No.2) in2004so as to improve the audit efficiency. AS No.5allows the same firm to conduct theeffective integration auditing of the company’s financial statements auditing andfinancial reporting internal control auditing, encouraging external auditors to rely oninternal control auditor’s conclusion for identifying internal control weakness as soonas possible.In our country, since January1,2012, State-controlled listed company on theMain Board began enforcing the internal control standard system. External auditorsrefer to the Chinese Certified Public Accountants Auditing Standards No.1411-takeadvantage of the work of internal auditors’ conclusion，evaluate the objectivity andprofessional competence of others work to determine its extent, and improve auditefficiency.Users of financial statements think that improving the timeliness of financialinformation has increased the value of financial information. Previous studies havealso found that financial reporting timeliness affect the stock price and its expectedreturns. It is not just illustrate the importance of financial information timeliness. Onthe other hand, clients also pile time pressure on auditors, requiring them to shortenthe audit time of the annual report.In view of the implementation of SOX act has great impact on the timeliness ofaudit report, in this paper, we study that the detailed disclosure of internal controlweakness affect audit work during the period when begin to enforce internal controlstandard system in our country, which has theoretical significance and practicalsignificance.Based on799companies in2012and the same799companies in2012as the research object, we test the change of audit delay of the sample companies afterenforcing the internal control standard system. The results indicate that the first yearimplementation internal control standard system is associated with a9-day decrease inaudit delay, after controlling for other impact factors，suggesting that these companiesimprove the timeliness of our country’s financial information disclosure. Based on799companies in2012, we examine the factors affecting audit delay by further. Theresults show that:(1) Companies that disclose the detail of internal controlweaknesses in the internal control self-assessment reports experience a short auditdelay;(2) Companies implementing the internal control standard system in2011experience shorter audit delays that those beginning implementing the system in2012.Since audit delay seriously affects the timeliness of accounting information, thisstudy analyzes the impact of the disclosure of internal control weakness on audit delay,which can clear the determination of audit delay and helps to measure and improveaudit efficiency. This paper analyzes the economic consequences of the disclosure ofinternal control weakness, which provides empirical evidence for regulators tounderstand effect of internal control system and provides policy support.