Investment Opportunities and Audit Report Lags: Initial Evidence

Abstract

We examine the association between audit report lag (ARL) and the level of investment opportunity of U.S. firms. High investment opportunities have been perceived to increase audit risk. External auditors, therefore, have to increase the required scope of audit work, which is expected to lead to longer audit report delays. The paper is motivated by (1) the effect of audit report lag on the timeliness of financial reporting and the market reactions to late earnings releases; and (2) the limited research on investment opportunities. With the sample of 8520 U.S. firm-year observations during the 2010-2012 period, we find firms with high investment opportunities are more likely to have longer audit report lags. Our results extend the contemporary research on ARL and investment opportunities. The paper also provides useful information for firms' management and external auditors.