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Audit committee
effectiveness
403
Received 5 November 2010
Reviewed 8 March 2011
Accepted 5 September 2011
1. Introduction
Timely release of corporate financial report has long been recognized as one of the
qualitative attributes of financial reporting (Accounting Principle Board, 1970;
MAJ
27,4
404
Financial Accounting Standards Board, 1980). This attribute suggests that financial
statements shall be made available to the public within a reasonable period of time from
the close of a companys financial year-end, otherwise the usefulness of the statements
would be impaired (The Indonesian Statement of Financial Accounting Standard, 2010).
In the capital market where corporate financial information is a primary source of
information to shareholders, timely publication of the information is crucial. For
investors, timely reporting reduces the uncertainty related to investment decision
(Ashton et al., 1989) and asymmetric dissemination of financial information among
stakeholders in the capital market (Jaggi and Tsui, 1999). This suggests that timely
information may help alleviate the occurrence of leak, rumours and insider trading in
capital market (Owusu-Ansah, 2000).
In order to protect shareholders interests in the capital market, the regulatory
authorities worldwide, including those in Indonesia have issued several rules concerning
the timeframe for information submission. According to the Badan Pengawas Pasar
Modal (BAPEPAM), i.e. The Indonesian Capital Market Supervisory Agency Rule (2003)
listed companies are required to submit the audited annual financial statement to
BAPEPAM and Indonesian Stock Exchange (IDX) at the latest at the end of the third
month after the date of the statement. However, for companies that are also listed in a
foreign stock exchange, the deadline to submit financial statement follows the deadline
in that foreign stock exchange (BAPEPAM, 2007). Concerning the annual report
submission, BAPEPAM (2006) rule requires listed companies to lodge annual report
within four months after companies financial year-end.
The purpose of this study is to examine the association between audit committee
effectiveness and timeliness of reporting. Audit committee is generally seen as an
important component of a firms overall corporate governance structure, specifically with
regard to audit quality and oversight of financial reporting. It may be expected that the
audit committee, through its monitoring function, could encourage or advise the
management to produce financial information on a timely basis. The expectation that
audit committee exercises an active monitoring of the company financial reporting process
is well recognized and this role has been confirmed by many corporate governance codes
and professional pronouncements for decades (Song and Windram, 2004).
Prior studies have examined the association between audit committee and financial
reporting quality using a number of proxies for financial reporting quality. These
proxies include fraudulent financial reporting (Abbott et al., 2000; Beasley et al., 2000),
financial reporting restatement (Abbott et al., 2004; Lin et al., 2006), earnings
management (Xie et al., 2003; Bedard et al., 2004; Yang and Krishnan, 2005), level of
interim financial disclosure (Mangena and Pike, 2005), qualified audit report
(Pucheta-Martinez and Fuentes, 2007) and timeliness of reporting (Abdullah, 2006;
Afify, 2009).
In terms of the relationship between audit committee and timeliness of reporting,
prior studies only examine a single characteristic of audit committee such as the
existence of an audit committee in the sample company (Afify, 2009), and the number
of independent members in the audit committee (Abdullah, 2006). Among these
studies, only audit committee formation was found to be significant in explaining
timeliness of reporting (Afify, 2009). However, in a country where audit committee
formation is mandatory for listed companies, audit committee formation alone would
not give impact to the effectiveness of audit committee. Likewise, the examination
Audit committee
effectiveness
405
MAJ
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406
be at least the same with the minimum requirement of BOC meetings as stated in
companys article of association.
In terms of AC reporting, IDX (2004a, b) rule stipulates that audit committee must
submit a report on its activity to the BOC periodically at least once in three months.
Audit committee reports must be disclosed in the annual reports as part of companys
corporate governance disclosures (BAPEPAM, 2006). The disclosures should at least
provide information on:
.
name, position, and short biography of audit committee member;
.
job description and responsibility of audit committee;
.
number of meetings held during the financial year and detail attendance of each
audit committee member; and
.
summary of the activities of audit committee in discharging its duties during a
financial year.
In terms of international comparison, audit committee rules in Indonesia, in general, are
similar to those in the USA, specifically in the membership requirement of an audit
committee (The World Bank, 2010). However, there are some provisions in the
Sarbanes-Oxley Act (2002) that have not been addressed in the audit committee
regulations in Indonesia. The requirements that audit committee pre-approve non-audit
service (Section 201) and must establish whistle-blowing procedures (Section 301) are
not mentioned in the BAPEPAM rules.
3. Prior literature
Prior studies on timeliness of corporate financial reporting are extensive. A review of the
extant literature suggests that this issue has been well studied in both developed and
emerging economies. Studies by Dyer and McHugh (1975) and Davies and Whittred (1980)
in Australia, Ashton et al. (1989) in Canada, Henderson and Kaplan (2000), Ettredge et al.
(2006) and Krishnan and Yang (2009) in the USA are among the example of previous
studies done in developed countries. In emerging economies, studies done by
Owusu-Ansah (2000) in Zimbabwe, Ahmed (2003) in South Asia, Wang and Song
(2006) in China, Abdullah (2006) in Malaysia, Al-Ajmi (2008) in Bahrain, and Afify (2009)
in Egypt have also examined factor influencing timeliness of reporting.
Prior researches indicate that there are many variables that can be used to observe the
variation in time lags of the release of financial information by listed companies. These
factors in general can be divided into two categories; audit-related and company-specific
factors (Owusu-Ansah, 2000). Company-specific factors are the factors which allow
management to prepare annual report promptly and to cut down the costs related to
unnecessary delay in reporting for example company size, financial condition such as
profitability and gearing, company age and type of industry. Meanwhile audit-related
factors are the factors that may promote (or hinder) the auditor to accomplish the audit
assignment and to release the audit report punctually, for example size of audit firm, the
presence of extraordinary and/or contingent items, audit opinion, and complexity of
operations. However, Owusu-Ansah (2000) also acknowledged that in reality, certain
company-specific factors such as company size, profitability, and gearing can also be
categorized as audit-related factors. Therefore, the separation between company-specific
and audit-related factors may not be straightforward as what the study has suggested.
Audit committee
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407
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408
The above definition asserts that the ultimate goal of audit committee service is to
protect shareholders interests, and the way audit committee can achieve this goal is
through the use of qualified members with adequate authority and resources to provide
diligent oversight. According to DeZoort et al. (2002) there are four elements that
determine audit committee effectiveness:
(1) composition;
(2) authority;
(3) resources; and
(4) diligence.
4.2.1 Composition. Composition refers to the requirement for being an audit committee
member for example independence, capability, education background, and experience.
The purpose of such requirement is to enable audit committees to make judgments
that are in the best interest of shareholders (DeZoort et al., 2002, p. 43). Consistent with
previous studies, this study uses independence and expertise as proxies for
composition.
In terms of independence, prior researches have documented the relation between the
independence of audit committee members and the integrity and quality of company
financial reporting. Companies with audit committee comprised solely of nonrelated or
outside directors were less likely to be sanctioned by the SEC for fraudulent financial
reporting (Abbott et al., 2000), had negative relation with the occurrence of earnings
restatement (Abbott et al., 2004), and were likely to reduce aggressive earnings
management (Bedard et al., 2004). Meanwhile, the higher percentage of outside directors
on the audit committee was associated with a lower probability for company to receive
qualified audit report (Pucheta-Martinez and Fuentes, 2007).
The requirement of having at least one financial expert in the audit committee
(BAPEPAM, 2004) assumes that such members can enhance committee effectiveness in
performing oversight duties. As financial experts have certain knowledge and
competencies, they are expected to lead the audit committee in identifying and asking
questions that challenge management and external auditors, and consequently, improve
financial reporting quality. Abbott et al. (2004) found that financial reporting
restatement or fraud was negatively associated with financial expert on audit
committee. Similarly, Farber (2005) documented that as compared to a matched sample
of fraud firms, non-fraud firms had significantly higher financial experts. Additionally,
it was found that having at least one member of audit committee who has accounting or
financial management experience reduced the likelihood of income-decreasing earning
management (Bedard et al., 2004), and was more likely to increase the level of interim
financial disclosure (Mangena and Pike, 2005). In summary, the above explanation
highlights why audit committee independence and expertise (audit committee
composition) may have some association with the quality of financial reporting.
4.2.2 Authority. According to DeZoort et al. (2002) authority refers to responsibility
since to discharge its responsibilities an audit committee is given the authority (e.g. to
ask questions to the auditors, have access to relevant documents). Audit committee
responsibilities which are stated in the regulation should be documented in the audit
committee charter. A formal charter not only provides guidance to members as to their
duties, but it is also a source of power for the audit committee (Bedard et al., 2004, p. 14).
DeZoort et al. (2002) state that no research, little if there is any, appears to have
addressed the issue of audit committee authority in relation to the effectiveness of audit
committee. Hence the present study attempts to contribute to the existing body of
literature by examining the relationship between audit committee authority and
financial reporting quality in terms of timeliness. The assessment of authority
dimension in this present study uses audit committee charter (i.e. whether there is a
proxy statement concerning audit committee charter) and audit committee oversight
responsibilities.
BAPEPAM (2004) rule requires all listed companies to adopt a charter for their
audit committee. A charter is necessary as it helps audit committee members to
concentrate on their specific responsibilities and to facilitate stakeholders in assessing
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effectiveness
409
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410
the role and responsibilities of the audit committee (DeZoort et al., 2002). Therefore, it is
expected that the existence of a charter may improve audit committee effectiveness.
Previous studies related to audit committee charter are few and the mainstream is in
the area of disclosure. For example, Carcello et al. (2002) examined audit committee
charter and audit committee report to assess whether the assigned duties in the charter
were actually performed and disclosed in audit committee report. The association
between the existence of audit committee charter and hence audit committee
effectiveness in assessing financial reporting quality appears not yet been examined.
In relation to the duties of audit committee, four of the responsibilities included in
the BAPEPAM (2004) rule will be examined in this study. These duties are oversight of
the financial statement, the external audit, the internal control system, and the
compliance with stock exchange regulation.
Audit committee has a duty to review financial information to be issued by the
company such as financial statement, projection, and other financial information. In
light of this duty, audit committee may meet and ask question to senior financial
management and controller, as well as to external auditor in order to ensure the integrity
of financial information. Audit committee members should also be familiar with
reporting requirements imposed by the stock exchange and other regulatory bodies, in
the Indonesian case, IDX and BAPEPAM, to ensure timely and accurate reporting.
Another responsibility of the audit committee is to review the effectiveness of the
company internal control. To ensure that proper internal controls are established,
the audit committee should communicate regularly or as needed with the personnel that
are responsible for companys internal control such as controller, internal auditor, as
well as outside auditor who evaluate the adequacy of companys internal control.
Empirical studies documented that there is a relation between audit committee and
internal control. Krishnan (2005) and Zhang et al. (2006) found that audit committee
quality (i.e. audit committee independence and expertise) had negative association with
companys internal control weaknesses. Furthermore, Gohs (2009) study revealed that
the higher the quality of audit committee in terms of its size, expertise, and independence
the more likely internal control problems can be remediated in a timely manner.
Meanwhile, Ettredge et al. (2006) suggested that the weakness in internal control was the
cause for longer audit delay; some companies could not meet the regulatory deadline of
10-K filing because of weak internal control. Therefore, it is expected that the audit
committee monitoring function on the effectiveness of internal control will lead to a
timelier financial reporting.
In relation to external audit activities, audit committee has an authority to select or to
recommend audit firms since one of its duties is to review the independence and
objectivity of public accountants. Change in external auditor also needs audit committee
approval. Previous studies in timeliness of reporting such as Ashton et al. (1989), Jaggi
and Tsui (1999), Ahmed (2003) and Owusu-Ansah and Leventis (2006) suggested that
type of auditor (Big 4) had negative relation with reporting delay. Hence, it is expected
that audit committee monitoring function on external audit activity will lead to a shorter
reporting delay.
In Indonesia, an audit committee also has duty to review the company compliance to
the law and regulation. The regulations that should be reviewed are regulation in the
capital market and other related regulations that are in line with company activities. As
stated above, the timeframe submission of financial reporting for listed companies
is regulated by both IDX and BAPEPAM. If audit committee fulfills its responsibility to
review companys compliance to the regulation, the company will be less likely to submit
its audited financial statements beyond the regulatory deadline. Therefore, based on the
above discussion, the authority dimension of audit committee effectiveness appears to
have relation with financial reporting quality, specifically timeliness of reporting.
The above explanation suggests that the existence of audit committee charter and
audit committee responsibilities (authority dimension) may have some impact on
financial reporting quality. In relation to financial reporting quality, Bedard et al. (2004)
found that the presence of a clear mandate defining the responsibilities[2] of audit
committee decrease the likelihood of aggressive earnings management.
4.2.3 Resources. DeZoort et al. (2002) posit that in order to be effective audit
committee must have adequate resources. Stated otherwise, audit committee must
have adequate number of committee members, to perform its job. Similar to Blue
Ribbon Committee (BRC, 1999) and Sarbanes-Oxley Act (2002), BAPEPAM (2004)
requires that audit committee at least comprise of three persons.
There are mixed findings relating to the impact of audit committee size on financial
reporting quality. Farber (2005) found that the difference of audit committee size
between fraud and non-fraud firms was not statistically significant. Audit committee
size was also found to have insignificant association with earnings management
(Xie et al., 2003; Bedard et al., 2004), and the level of interim financial disclosure
(Mangena and Pike, 2005). However, it was found to be a significant variable in
explaining the likelihood of quarterly earnings management (Yang and Krishnan, 2005),
of earnings restatement (Lin et al., 2006), and of qualified audit opinion in annual report
(Pucheta-Martinez and Fuentes, 2007).
4.2.4 Diligence. Expertise, independence, authority, and resources, will not result in
effectiveness unless the audit committee is active. Diligence refers to the willingness
of committee members to work together as needed to prepare, ask questions, and
pursue answers when dealing with management, internal auditors, external auditors,
and other relevant constituents (DeZoort et al., 2002, p. 45). Proxies for diligence are
the number of meetings held per year by audit committee and audit committee
voluntary disclosure.
BAPEPAM (2004) rule does not mention specifically how often audit committees
should meet. However, IDX (2004a, b) rule stipulates that an audit committee must
submit a report on its activity to the BOC periodically at least once in three months.
Due to this requirement, it may be expected that audit committee would hold at least
meetings four times a year, before it submits a report to the BOC. Therefore, to assess
its effectiveness, the present study uses the requirement of having audit committee
meetings of at least four times a year.
Several studies have examined the relationship between audit committee meetings
and financial reporting quality. Farber (2005) found that fraud firms had less frequent
audit committee meetings than non-fraud firms in a year preceding the fraud is
revealed, but in three years after, fraud firms conducted audit committee meetings
more frequent than non-fraud firms. With regard to restatement (one of the proxies for
low reporting quality), Abbott et al. (2004) found that firms with audit committee
meetings at least four times a year were less likely to have prior period financial
statement restatement. However, Lin et al. (2006) found that audit committee meetings
had insignificant relationship with earnings restatement.
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412
Dimension
Code
Composition ACIND
Authority
Resources
Diligence
Proxies
AC independence
All members shall be external
independent parties
ACEXP
AC expertise
At least one member of the AC
has educational background
and experience in accounting
or finance
ACCHART AC charter
Proxy statements concerning
AC charter
ACDUTY AC responsibility/duty
Reviewing companys financial
information
Reviewing external auditing
activity
Reviewing the effectiveness of
companys internal control
Reviewing companys
compliance with regulations
ACSIZE
AC size
Comprise at least three
members
ACMEET AC meeting
AC shall has a meeting at least
four times in a year
ACVOLDIS AC voluntary disclosure
AC reports voluntary
disclosure
1;0
Audit committee
effectiveness
413
1;0
1;2;0
1;0
1;0
1;0
Jaggi and Tsui (1999) and Lee et al. (2008) which used Zmijewskis (1984) model (ZFC)
to measure the risk index of a company found consistent result that the risk index had
positive association with audit report lag. The use of the index which is a combination
of some financial indicator may be better to the capture financial risk of the company
rather than relying on one measure of financial ratio (Ahmed, 2003). However, Ahmed
(2003) found no significant association between the ZFC index and timeliness of
reporting in India, Pakistan, and Bangladesh. Therefore, the hypothesis stated in a null
form is as follows:
H2. There is no association between financial condition and reporting lead time.
4.4.2 Size. Company size has been found to have a relationship with timeliness of
reporting (Ashton et al., 1989; Carslaw and Kaplan, 1991; Ng and Tai, 1994; Jaggi and Tsui,
1999; Ettredge et al., 2006; Al-Ajmi, 2008; Lee et al., 2008; Afify, 2009). Several reasons have
been proposed for a negative relationship between reporting lag and the companys size.
First, larger companies have more resources to set up a proper internal control resulting in
less time to be spent by external auditor in conducting substantive testing (Jaggi and Tsui,
1999). Second, larger companies are exposed to more public scrutiny which creating
pressure on these companies to issue financial information promptly. Large companies are
Table I.
Component of AC
effectiveness index
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414
often followed by a large number of investment and media analysts who demand for
timely reporting in order to review their performance for investment decision-making
(Owusu-Ansah, 2000). Finally, large companies have higher resources which enable them
to pay the auditor a higher audit fees to get the audit done in a shorter period of
time (Al-Ajmi, 2008). In the present study, size is measured by a natural logarithm of the
companies total assets. The hypothesis is stated as follows:
H3. Size is negatively associated with reporting lead time.
4.4.3 Type of auditor. It can be argued that large audit firms provide a higher quality
audit because of greater monitoring ability (Al-Ajmi, 2008). They also have greater
staffs and better experience in auditing the listed companies (Ahmed, 2003; Afify,
2009). Hence it is more likely that large audit firms will perform audit faster as they
may have the advantage of using presumably more efficient audit technology (Newton
and Ashton, 1989). In addition, the international audit firms (Big 4 auditors) have a
tendency to finish audit faster to preserve their reputation (Afify, 2009).
Some studies have examined empirically the relationship between type of auditor
and timeliness of reporting. It was found that type of auditor was more likely to reduce
audit report lag in India and Pakistan (Ahmed, 2003) and in Canada (Ashton et al.,
1989). Big 4 auditors were found to be significant in influencing earnings
announcement lag in the USA (Lee et al., 2008). Therefore, the hypothesis presented
in the alternative form is as follows:
H4. Type of auditor is negatively associated with reporting lead time.
4.4.4 Type of industry. Consistent with Owusu-Ansah and Leventis (2006), we examine
the possible effect of three types of industry, i.e. manufacture, construction, and service
on timeliness of reporting. It is expected that firms in service industry may have
shorter reporting lag because they have little or no inventory. According to Carslaw
and Kaplan (1991) audit inventory is time consuming as potential errors frequently
occur in valuing inventory. Following Owusu-Ansah and Leventis (2006), although the
listed companies in IDX are classified into nine major sectors, we broadly categorize
our sample into three sectors: manufacture, construction, and service. However, we
only include construction and service industry in the equitation model to avoid
dummy variable trap (Gujarati, 1995, p. 504). The manufacture category is omitted to
serve as a base, to which the service and construction categories are compared. The
hypothesis stated in a null form is as follow:
H5. There is no association between type of industry and reporting lead time.
5. Research method
5.1 Sample and sampling design
There were 396 companies listed on the IDX as at 31 December 2008 (IDX, 2009).
However, there were only 318 companies whose annual reports were available on the
IDX web site or companys web site. We choose our sample on the basis of the following
criteria. First, following Owusu-Ansah and Leventis (2006) we eliminated three
companies that were listed for the first time in 2008. Second, 73 financial companies were
excluded as such companies are subject to a stricter regulation which may impact on
their reporting behavior relative to other industry. Third, we eliminated eight
Audit committee
effectiveness
415
5.2 Research model
The purpose of the study is to examine whether audit committee effectiveness have an
association with timeliness of reporting. Therefore, the dependent variable is timeliness
of reporting which is defined as the number of days between a companys financial
year-end and the day on which the company publicly releases its audited financial
statement. Consistent with Owusu-Ansah (2000) and Owusu-Ansah and Leventis (2006),
we prefer to use lead time instead of delay to denote timeliness based on contention
that if for example, a company releases its financial statement by regulatory deadline,
then, it cannot be said that the company has delayed in releasing its financial
statements (Owusu-Ansah and Leventis, 2006, p. 277). Hence, we define the number of
days that elapses between a companys financial year-end and the day on which audited
financial statement is received by the stock exchange as its financial reporting lead time
(FRLT). This data can be obtained from issuer announcement database of IDX.
The main independent variable is audit committee effectiveness which is measured
by the total score of audit committee effectiveness index. Other variables such as
financial condition, size, type of auditor and type of industry are included as control
variables of the study. The data for these independent variables can be obtained from
the companys annual reports.
The following cross-sectional regression model with an ordinary least squares
(OLS) technique is used to test factors influencing timeliness of reporting[4]:
FRLT b0 b1 ACEFECj b2 ZFCj b3 SIZEj b4 AUDIj b5 CONSj
b6 SERV4j ej
where the definition of variables is presented in Table III.
Description
Companies listed on IDX as of 31 December 2008
Companies which the annual report was available in the IDX
web site
Deduct
Companies that listed for the firs time in 2008
Companies in the banking, insurance, investment, and leasing
business
Non-financial cross-listed companies
Companies with lacking some data of interest
Usable sample companies
No. of
companies
396
Percentage of total
population
100
318
80.30
0.75
74
8
22
211
18.68
2.02
5.55
53.28
Table II.
Sampling procedure
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Exp.
sign
Variable
Dependent variables
FRLT
Financial reporting
lead time
416
Independent variables
ACEFEC AC effectiveness
ZFC
SIZE
AUDI
CONS
2
2
?
Financial condition
Company size
Type of auditor
Construction
industry
Service industry
SERV
Measurement
Table III.
Definition of variables
and expected signs
Notes: The formula for the index is as follow; ZFC 24.336 2 4.513 (ROA) 5.679 (FINL) 0.004
(LIQ) where ROA is net income to total asset, FINL is the ratio of total debt to total assets, and LIQ is
the ratio of current assets to current liabilities; a higher index score represents a higher probability for
a company to suffer financial failure
Table IV.
Pattern of number of
days to release audited
financial statement
0-50
51-70
71-89
90 (regulatory deadline)
91-110
111-130
131-150
151-170
171-190
191-210
Total
Frequency
Percentage
Cumulative percentage
0
9
53
84
18
29
8
5
3
2
211
0
4.3
25.1
39.8
8.5
13.8
3.8
2.3
1.4
1
100
0
4.3
29.4
69.2
77.7
91.5
95.3
97.6
99
100
IDX to release audited financial statement to the public after the end of their financial
statement. The average FRLT for the listed companies on IDX is shorter as compared
to those in Greece as reported in Leventis and Weetman (2004) (106.95 days on average)
and Owusu-Ansah and Leventis (2006) (113 days on average). It is however beyond the
90 days regulatory deadline as stipulated in BAPEPAM (2003) rule. The table also
shows that while the shortest FRLT was as early as 53 days, the longest was as late as
210 days. The mean score of audit committee effectiveness (ACEFEC) is 9.35 out of the
14 maximum score of effectiveness. This number suggests that the average ACEFEC
score of the sample firms is about 67 per cent of the maximum score of effectiveness.
A skewness-kurtosis analysis[5] indicates that one of the continuous variables is not
normally distributed, i.e. the FRLT. Following Ashton et al. (1989), Carslaw and Kaplan
(1991) and Jaggi and Tsui (1999), we transform the raw data for FRLT variable into log
natural of the raw score of the variable. The value of skewness and kurtosis for FRLT
after the transformation is 0.779 and 2.114, respectively, indicating that the data is
normally distributed (Table V).
Audit committee
effectiveness
417
Min.
Continuous variables
FLRT
53
ACEFEC
2
ZFC
2185.41
SIZE
9.12
Dichotomous variables
AUDI
0
CONS
0
SERV
0
n
Max.
Mean
210
14
196.11
18.33
98.08
9.35
2 14.60
13.96
%
40.3
22.7
28.4
1
1
1
211
SD
Skewness
Kurtosis
24.13
2.91
46.87
1.74
1.822
2 0.378
0.182
0.146
4.417
20.642
3.949
20.173
Table V.
Descriptive statistics
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418
Table VI.
Pearson product-moment
correlation
FRLT
ACEFEC
ZFC
SIZE
AUDI
Industry a
MANU
CONS
SERV
FRLT
ACEFEC
ZFC
1
20.348 * *
0.407 * *
20.125
20.237 * *
1
20.294 * *
0.342 * *
0.317 * *
1
20.264 * *
20.373 * *
20.112
0.173 *
20.037
0.052
20.023
20.036
20.141 *
0.085
0.078
AUDI
1
0.393 * *
0.155 *
2 0.047
2 0.128
1
0.087
2 0.146 *
0.039
Notes: Correlation is significant at: * 0.05 and * *0.01 levels (two-tailed); athe pair-wise correlation
coefficients between the categories in the industry are not presented because no meaningful inference
can be obtained from them
Variable
Constant * *
ACEFEC * *
ZFC * *
Table VII.
Results of multivariate
regression
SIZE
SIZE
AUDI
CONS *
SERV
Number of observations
F-statistics
Prob. . F
R2
Adjusted R 2
Exp. sign
2
2
2
?
?
211
11.151
0.000
0.247
0.225
Coef.
t-value
Sig
Tolerance
VIF
4.637
2 0.020
0.002
0.009
2 0.018
0.069
2 0.008
38.964
23.893
4.797
1.012
20.573
2.005
20.251
0.000
0.000
0.000
0.313
0.567
0.046
0.802
0.818
0.810
0.769
0.733
0.859
0.852
1.223
1.234
1.301
1.364
1.164
1.174
Audit committee
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419
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the probability of late filing in the year 2008 where the US economic recession started
to spread out creating a global economic recession. The economic crisis may have some
impact on timeliness of reporting of Indonesian listed companies as the crisis had led
some listed companies to experience financial distress due to decreasing purchasing
power of the market. Thus, further study may perform a longitudinal analysis to
examine the impact of the global economic crisis on timeliness of reporting.
420
Notes
1. Indonesia adopts a two tier governance model, therefore there are two board structure, BOC
and board of directors (BOD). BOC is a shareholder representative whose duty is to provide
strategic guidance and give advice to management decision, while BOD is in charge to run
the business. The role of BOC in a two tier governance model is similar to that of BOD in a
one tier governance model.
2. Bedard et al. (2004) measure the presence of a clear mandate defining the responsibilities of
audit committee with a dummy variable coded 1 if there is a proxy statement indicating the
audit committee oversight responsibilities of financial statements and external audit,
0 otherwise.
3. In the Indonesian context, audit committee voluntary disclosure is the disclosure of audit
committee in annual reports other than what is required by BAPEPAM (2006) Rule
(see Section 2 in the fourth paragraph). For example, it is required to disclose number of
meeting held during a year and detail attendance of each audit committee member. If a
company also discloses the topic they discuss in the meeting, it is a voluntary disclosure.
Another example is the presentation of audit committee remuneration in company annual
reports.
4. As stated earlier the manufacturing category (MANU) of the industry variable is not
included in the model because it serves as the base category to which the construction and
service sectors are compared (Owusu-Ansah and Leventis, 2006).
5. Mahajan and Chander (2008) use the rule of thumb for the value of skewness 2 0.8 to 0.8
and kurtosis 23 to 3 to assess the normality distribution of the data.
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