British Journal of Advance Academic Research Volume 2 Number 1 (2013) pp. 87-94 ISSN 2050-6015 (Print) ISSN 2050-6023 (Online) Current Impact Factor: 9.02 www.sachajournals.com SECTORAL VARIATIONS IN DELAYS IN CORPORATE FINANCIAL REPORTING IN NIGERIA: EFFECT OF REGULATORY PRESSUREE OLADIPUPO, A.O. 1 and DABOR, E.L 1 1 Department Of Accounting, Faculty of Management Sciences University Of Benin, Nigeria ABSTRACT The goal of this study is to find out whether there are statistically significant differences in timeliness of corporate financial reporting in the financial and nonaudit delay, financial sectors in Nigeria. The study examines the variations in management delay and total delay in corporate financial reporting in the financial and non financial sectors. Using 825 firm-year observations of data from the annual reports and accounts of Seventy Five (75) companies quoted on the Nigerian Stock Exchange from 2000 to 2010, the results show that financial firms do report their financial statements earlier than the non-financial firms. The mean audit delay for financial firms is 150 days and 166 days for non-financial firms with mean differencee of 16 days. The mean management delay for financial firms is 81 days and 94 days for non-financial firms with mean difference of 13 days.. The mean total delay of financial firms is about 231 days and 260 days for the nondifference in financial firms, with difference of 29 days. The test of hypothesis of means shows that the mean difference of 29 days for total delay, mean difference of 16 days for audit delay and the mean difference of 13 days for management delay are not statistically significant at 5% level. Thus, the differences in the regulatory provisionss on the timing of publication of corporate financial reporting are not necessary. Uniform timeline should be set for all publicly quoted companies in Nigeria regardless of the sector in which they operate if the regulatory bodies want public firms to report more timely in Nigeria to meet the global best financial reporting practice. Keywords: Financial Reporting, Regulatory Pressure, Stocks, Trading. JEL Classifications: F16-F19, L81. 1. INTRODUCTION Timeliness is one of the desirable qualities of good accounting. Timeliness of financial information is about making audited annual report and accounts available to the users of financial information as at when due and ensuring that it is current when it is received and when it is to be used information (Accounting Principles Board, 1970; Givolly & Palmon, 1982; Trueblood, 1973). Any delay in disclosing accounting informationn arising from the 87
extensive or prolonged reporting interval would automatically affect the timeliness of the corporate annual report and accounts. Recognising the need for timely financial reporting, most countries of the world regulate the timing of published annual reports and accounts of their publicly quoted companies. The bases of these regulations vary from country to country. In United Kingdom for instance regulation of timing of corporate financial reporting is based on the market value of equities of public companies. Depending on the market value of equities, the non-accelerated filers have 90 days (3 months), the accelerated filers have 75 days (2 ½ months) while large accelerated filers have 60 day (2 months) after their annual financial year-end to file their audited annual reports and accounts (UK, SEC, 2002). In the United States, the basis of regulations of timing of corporate financial reporting is the nature of financial reports. Thus, public companies have 90 days (3 months) after their annual financial year-end and 45 days (1½ months) to file audited annual financial statements and quarterly reports respectively (US, SEC Regulations, 2005). However, in some other countries like Turkey and Nigeria for examples the basis of regulations of timing of corporate financial reporting is by the sectors of the economy, where the economy is divided into financial (banking sector) and non-financial sector (non- banking sector). In Turkey for example, banks have 56 days (2 months) while non-banks have 70 days to publish their annual audited financial reports after the end of their accounting period (Turkey, CMB Communique XI, No.1, clause 48). The situation in Nigeria is such that taking all the statutory provisions on timing of published audited annual reports and accounts into consideration, financial institutions (banks and other financial institutions) have 120 days (4 months) while nonfinancial firms have 180 days (6 months) after their annual financial year-end to publish their annual audited reports and accounts (for details see BOFIA, 2003; CBN guidelines, 2004; CITA, 2007; & CAMA, 2004). From the foregoing it is evident that the issue of sectorial variations in timeliness of corporate financial reporting is inconclusive in the literature. While some studies observed no sectorial differences (Ahnad & Kamarudin, 2003), others observed sectorial differences (Givoly & Palmon, 1982; Carslaw & Kaplan, 1991; Aktas & Kargin, 2011; Akle; Izedonmi & Ibadin, 2012; Iyoha, 2012). However, the issue of whether the sectorial differences in timeliness of corporate financial reporting has not been explored by those that observed the sectorial differences. This is the thesis of this study. Thus, the main objective of this study is to determine the sectoral differences in the audit lags, reporting lags and total time lags of corporate financial reporting in Nigeria. The research hypothesis is to test that there are no statistical significance differences in the audit lags, reporting lags and total time lags of financial and non-financial public companies in Nigeria. 2. REVIEW OF LITERATURE The literature on sectorial variations in the timeliness of corporate financial reporting abounds in developed and developing countries. Carslaw and Kaplan (1991) examined sectoral dynamics of audit delay in New Zealand for two- year period (1987-1988). They observed shorter audit delay in financial sector than non-financial sector. They claimed that the very limited number of stocks (or no stocks) in the financial sector reduces audit complexity. Ahmad and Kamarudin (2003) investigated the determinants of audit delay in the Kaula Lumper Stock Exchange over five- year period (1996-2000). The results revealed that the companies in nonfinancial sector, those with qualified audit opinions, incurring losses and having higher risk tend to have longer audit delay than those companies in the financial sector and are audited by the big -5 audit firms. Dogan, Coskun and Celik (2007) examined the relationship between disclosure time of financial statements and firm s performance. The study examined the relationship between a set of explanatory variables (such as profitability, financial risk, size and industry) and the timing of annual report releases in Istanbul Securities Exchange (ISE) listed 88
companies in an emerging market in Turkey. No sectoral differences in the timing of financial reporting in Turkey were observed contrary to the view of Givoly and Palmon (1982). Al-Ajmi (2008) carried out an empirical investigation into the timeliness of annual reports of financial and non-financial companies listed on the Bahrain Stock Exchange. The study showed that while company size, profitability and leverage were major determinants of timeliness of annual reporting, accounting complexity and auditor type (big 4 or non-big 4) were not. Corporate governance proxies were found to be the determinants of the reporting lag (the period between the auditors signature dates and the publication dates). Aktas and Kargin (2011) considered the effects of sector, reporting type and income on firms timely annual financial reporting practices listed in Istanbul Stock Exchange (ISE), Turkey, for the period of 2005-2008. Thus, sector, financial statement type and income were regressed on lead time of financial statement. The results revealed that non-financial firms (79 days) publish their financial statements later than others (67 days). Thus it took non-financial firms about 6 days more to release their financial statements. Also, consolidated firms released their financial statements later than others (66 days). Similarly, firms with positive income (good news) released their financial statements earlier than those with negative income (bad news). The regression coefficients showed that sector and financial statement type have positive significant effects on the lead time while income has negative significant effect on lead time of financial reporting. In a study of corporate governance and financial reporting timeliness in 83 companies listed in Egyptian Stock Exchange for the period from 1998 to 2007, Akle (2011) observed among othe things that there was a decrease in reporting lag in the financial firms from 80 days in 1998 to 63 days in 2007 and the non-financial firms from 154 days in 1998 to 79 days in 2007. In Nigeria, Izedonmi and Ibadin (2012) observed variations in timeliness of corporate financial reporting between banks and non-banks. They observed that audit report lags varied from 115 days in 2007 and 119 days in 2008 in the financial sector to 121 days in 2007 and 119 days in 2008 in the non-financial sector. Iyoha (2012) also observed among other things that banking sector was timelier in financial reporting than the non-banking sector as the banking sector recorded the least reporting delay compared to other sectors like agriculture, conglomerates and the rest. It may appear that statutorily the public companies in financial sector in Nigeria have every reason to report more timely than those in the non-financial sector. We may then ask: Are there any statistically significant differences in the reporting times of firms in the financial and non-financial sectors in Nigeria? Are there statistical significant differences in the reporting delays by firms in the financial and non-financial sectors in Nigeria? Thus, there is the need to examine the variations in financial reporting timeliness between the financial and non-financial firms in Nigeria 3. MATERIALS AND METHODS From a sample of 75 publicly companies on the Nigeria Stock Exchange, we obtained data from the audited annual reports and accounts for a period of 11 years (2000-2010). The data included the balance sheet date (BSD), the audit report date (ARD) and the annual general meeting date (AGMD). From these data, we estimated three variables: the audit delay, management delay and total delay. Audit delay (AD) is the number of days between the balance sheet date (BSD) and the audit report date (ARD), when the auditors sign-off the audited annual report and accounts. Management delay otherwise known as financial reporting delay is the number of days between the audit report date (ARD) and the annual general meeting date (AGMD) when the audited annual report and account are presented to the public. The total delay is the number of days between the balance sheet date (BSD) and the annual general meeting date (AGMD) (Oladipupo & Izedonmi, 2009; 2013). These are expressed as follows 89
AD = ARD- BSD. (i) MD = AGMD-ARD (ii) TD = AGMD-BSD (iii) We used descriptive statistics such as the frequency distribution and measures of central tendency and dispersion i.e. minimum, maximum and mean distribution and standard deviations. One-way analysis of variance was carried out on the audit delay, management delay and total delay between the financial and non-financial sectors of Nigerian economy. The hypothesis, which stated that there was no statistical significant difference between the delays in financial reporting in financial and non financial sectors in Nigeria, was tested using analysis of variance. 4. RESULTS This study examines sectoral variations in time lags in corporate financial reporting. The hypothesis is to test whether the difference in the time lags between the sectors are statistically significant. Two sectors were identified for the purpose of this study. They are the financial and non-financial sectors. Out of the 75 companies used in this study, 13 companies belong to the financial sector while the rest 62 companies belong to the non-financial sector. The table 1 shows that the mean time lags are smaller in the financial sector than in the nonfinancial sector. While the total delay in financial sector is about 231 days, it is about 260 days in non-financial sector. Similarly, the audit delay is longer in non-financial sector (166 days) than in financial sector (150 days). Likewise the management reporting delay in non-financial sector (94 days) is more than in the financial sector (81 days). Table 1: Sectoral Variations in Mean of Time Lags of Corporate Financial Reporting Classes of Sectors Time Lag of Auditors' Reports ( Auditors Delay in days) Time Lag of Public Disclosure (Management Delay in days) 90 Total Time Lag of Financial Reports ( Total Delay in days) Financial Sector 150 81 231 Non-financial Sector 166 94 260 Total 163 92 255 Source: Authors (2012) To test for significance in the differences in means of the time lag of corporate financial reporting between the two sectors, we make use of one-way Analysis of Variance (ANOVA). The results show that for the audit delay, the computed value of F (1,823) = 1.051; p > 0.05 is less than the critical value of F(1,823)=7.88, there is no significant difference between the financial and non-financial sector. The levene statistic (1,823) = 2.707, p-value (significance) of 0.10 shows that there is no evidence for heterogeneity of variance. Similarly, the results for management delay, F (1,823) = 1.101; p > 0.05 show that there is no significant difference in the management delay between the financial and non-financial sectors. However, the levene statistic (1,823) = 5.308; p-value (significance) of 0.021 shows that there is evidence of heterogeneity of variance. For the total delay, F (1,823) = 1.988; p > 0.05 shows that there is no significant difference in the total delay in corporate financial reporting between financial and non- financial sectors. However, the levene statistic (1,823) = 8.276; p-value of 0.004 is an evidence that there is heterogeneity of variance. We can therefore conclude that there are no statistically significant difference in audit delay, management delay and total delay in the financial and non-financial sectors. See table 2 for details of the values of the one-way ANOVA.
Table 2: One-way Analysis of Variance (ANOVA Descriptive Deviation Error 95% Confidence Interval for Mean Lower Bound Upper Bound Between- Component Variance Time Lag of Auditors' Reports ( Auditors Delay in days) Model Fixed 166.372 5.792 151.90 174.64 Random 6.183 84.71 241.83 6.394 Time Lag of Public Disclosure ( Management Delay in days) Model Fixed 130.141 4.531 82.90 100.68 Random 5.118 26.76 156.81 7.741 Total Time Lag of Financial Reports ( Total Delay in days) Model Fixed 217.874 7.585 240.17 269.94 Random 14.564 70.01 440.11 211.385 Test of Homogeneity of Variances Levene Statistic df1 df2 Sig. Time Lag of Auditors' Reports ( Auditors Delay) Time Lag of Public Disclosure (Management Delay) Total Time Lag of Financial Reports (Total Delay) 2.707 1 823.100 5.308 1 823.021 8.276 1 823.004 ANOVA Time Lag of Auditors' Reports (Auditors Delay) Time Lag of Public Disclosure (Management Delay) Total Time Lag of Financial Reports (Total Delay) Means Plots Between Within Sum of Squares df Mean Square F Sig. 29097.533 1 29097.533 1.051.306 2.278E7 823 27679.574 Total 2.281E7 824 Between Within 18653.537 1 18653.537 1.101.294 1.394E7 823 16936.804 Total 1.396E7 824 Between Within 94346.001 1 94346.001 1.988.159 3.907E7 823 47469.273 Total 3.916E7 824 91
Paired Samples Test Paired Differences Mean Deviation Error Mean 95% Confidence Interval of the Difference Lower Upper t Df Sig. (2- tailed) 92
PTime Lag of aauditors' ireports r ( Auditors Delay) - Time 1Lag of Public Disclosure ( Management Delay) BRITISH JOURNAL OF ADVANCE ACADEMIC RESEARCH, VOLUME 2 NUMBER 1 (2013); PP. 87-94 Mean Deviation Source: Authors computation (2012) 5. DISCUSSIONS Paired Samples Test Paired Differences Error Mean 95% Confidence Interval of the Difference Lower Upper t Df Sig. (2- tailed) 71.478 204.241 7.111 57.520 85.435 10.052 824.000 The study examines the sectoral variations in delay in corporate financial reporting. The results show that financial firms do report their financial statements earlier than the nonfinancial firms. The mean audit delay for financial firms is 150 days and 166 days for nonfinancial firms with mean difference of 16 days while the mean management delay for financial firms is 81 days and 94 days for non-financial firms with mean difference of 13 days. The mean total delay of financial firms is about 231 days and 260 days for the non-financial firms, with difference of 29 days. The test of hypothesis shows that the mean differences of 16 days for audit delay, 13 days for management delay and 29 days for total delay are not statistically significant at 5% level. 6. CONCLUSION From the results, the dichotomy in regulations on timeliness of corporate financial reporting between the financial and non-financial sectors in Nigeria is unwarranted as there are no statistically significant differences in the audit delay, management delay and total delay in financial reporting between the two sectors. Therefore, if the financial reporting regulatory bodies in Nigeria want to achieve high success in timeliness of corporate financial reporting, then uniform timeline for financial reporting should be set for all the public firms in Nigeria regardless of the sectors in which they operate. Efforts should be made to reduce the expected time of publication of audited annual reports and accounts to 90 days after the balance sheet dates of reporting public firms regardless of the sector of the economy in which they operate in order to meet with the global best practice. REFERENCES Accounting Principle Board (1970) Statement No. 4: Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises, New York: AICPA. Ahmad, R., and Kamarudin, A.(2001). Audit delay and timeliness of corporate reporting: Malaysian Evidence. Available at http:/www.hicbusiness.orgbiz2003proceedings/khairul%20kamarudin%202.pdf 93
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