Audit duration quality and client credit risk

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

Asia-Pacific Journal of Accounting & Economics, 2015, vol. 22, issue 2, 137-162

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.

Date: 2015
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DOI: 10.1080/16081625.2014.981936

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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