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Managerial ability, audit quality, and audit report lag

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  • Li, Yang
  • Liu, Sheng
  • Zhou, Yaou

Abstract

This study examines whether managerial ability is associated with audit report lag and, if so, whether this relation varies with the quality of the engaging auditor and/or the internal control environment. Utilizing the managerial ability measure developed by Demerjian, Lev, and McVay (2012), we find that managerial ability is negatively related to audit report lags, consistent with the theory that managers with greater ability help reduce engagement risks and thus audit effort and contribute to a timelier auditing and financial reporting process. We also document that the observed association between managerial ability and audit report lags is mainly driven by auditors of lower quality, proxied by auditor size and auditor's industry specialization. This finding suggests that auditors with fewer resources and/or reputation concerns depend more on the client management team that assists them in improving financial reporting timeliness. Further, we find that the negative relationship is more pronounced when clients have internal control weaknesses, implying that the role of managerial ability is more salient when firms experience internal issues. Our findings suggest that a reasonably able management team is particularly critical to reporting timeliness for firms operating in relatively disadvantageous conditions.

Suggested Citation

  • Li, Yang & Liu, Sheng & Zhou, Yaou, 2025. "Managerial ability, audit quality, and audit report lag," Advances in accounting, Elsevier, vol. 68(C).
  • Handle: RePEc:eee:advacc:v:68:y:2025:i:c:s0882611024000518
    DOI: 10.1016/j.adiac.2024.100780
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    Keywords

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    JEL classification:

    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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