Audit Report Lag and Earnings Quality of Listed Firms In Ghana

Abstract

ABSTRACT The purpose of the study was to investigate the relationship between Audit Report Lag (ARL) and earnings quality of listed firms in Ghana. Audit Report Lag (ARL) was measured as the number of calendar days from year-end to the date of the auditor's report while earnings quality was measured base on the relations among income, cash, and accruals. Hence, the study adopted Earnings Smoothness (SM), Earnings Surprise (ES), Closeness to Cash (CC), and Accrual Quality (AQ) measures for earnings quality. The study collected data on 33 firms listed on the Ghana Stock Exchange (GSE) between the period of 2009 to 2019 and employed a Systems Generalized Method of Moments estimator to analyze the data. It was revealed that ES, CC, and AQ have a positive significant relationship with ARL whiles SM has a negative significant relationship with ARL. Hence, the study concluded that a longer ARL improves the quality of the earnings in terms of reducing unexpected discrepancies between anticipated earnings and actual earnings, producing earnings that can easily be approximated to operating cashflows and producing earnings that have less deceptive manipulative variation in working capital which will cause operating cashflows volatility but provide management an opportunity to engage in irregular earnings variation or volatility by shifting revenues and expenses from one fiscal period to another. Therefore, auditors are expected to put in place measures by ensuring or advising owners not structure management’s compensations and incentive against their financial performance in other to reduce these irregularities.