Audit duration quality and client credit risk

Pei Gi Shu, Tsung-Kang Chen, Wen Jye Hung*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

Abstract

Using Taiwanese listed firms, we examined how auditor-related idiosyncratic risk affects clients’ credit risks from the perspective of audit duration quality, including the level and volatility of audit report lag (ARL). We find that both the level and the volatility of ARL are positively related to clients’ credit risks when other well-known determinant variables are controlled. In addition, the level (volatility) of ARL has weaker (greater) power in predicting the financial crisis of client firms associated with the Big-4 auditing firms than the non-Big-4 ones. Moreover, the results are robust to the issue that ARL may be long, the concern of initially engaged clients, different estimation periods of ARL volatility, and another credit risk measure.

Original languageEnglish
Pages (from-to)137-162
Number of pages26
JournalAsia-Pacific Journal of Accounting and Economics
Volume22
Issue number2
DOIs
StatePublished - 3 Apr 2015

Keywords

  • audit duration quality
  • audit report lag (ARL)
  • audit report lag volatility
  • credit risk
  • financial distress

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