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Moderating
Organizational complexity and role of audit
audit report lag in GCC economies: quality

the moderating role of

audit quality
Faisal Khan Received 2 March 2023
Revised 1 June 2023
College of Business, City University Ajman, Ajman, United Arab Emirates and 31 August 2023
Putra Business School, Serdang, Malaysia Accepted 2 September 2023

Mohamad Ali Bin Abdul-Hamid

Putra Business School, Serdang, Malaysia
Saidatunur Fauzi Saidin
School of Business and Economics, Universiti Putra Malaysia,
Serdang, Malaysia, and
Shatha Hussain
College of Business, City University Ajman, Ajman, United Arab Emirates

Abstract
Purpose – This study aims to investigate whether organizational complexity (hereafter firm complexity)
increases audit report lag (ARL) in a unique environment of GCC countries.
Design/methodology/approach – The research study uses a panel data set of 6,084 firm-year
observations of nonfinancial firms from GCC economies from 2009 to 2022. First, the study uses an ordinary
least square estimator to examine the association of firm complexity with ARL. Second, for robustness
purposes, the study applies the propensity score matching technique.
Findings – This research study finds that the firms’ complexity increases ARL. Supporting the argument
that auditors respond to firm complexity with increased effort, the authors find a positive relation of firm
complexity with ARL. This relationship is augmented by auditor change, auditors’ tenure, auditor-qualified
opinion and adoption of IFRS. In addition, the authors also find that Big-4 and audit firm industry
specialization curtail the positive impact of firm complexity on ARL.
Research limitations/implications – Firms in the GCC have less time to complete their audit and
complex firms are likelier to have bigger ARLs. This study provided evidence regarding the curtailing effect
of audit quality in GCC. Our findings suggest policymakers and reformers choose improved audit quality to
reduce the possibility of larger ARL.
Originality/value – This study enriches the scholarship by presenting a mechanism for reducing the ARL
of complex firms through higher audit quality. This study contributes to agency theory by emphasizing audit
quality’s important role in emerging markets.

Keywords Firm complexity, Firm industry specialization, Big-4, ARL, GCC economies
Paper type Research paper
Journal of Financial Reporting and
Accounting
© Emerald Publishing Limited
1985-2517
JEL classification – M41, M42, M48 DOI 10.1108/JFRA-03-2023-0113
JFRA 1. Introduction
Recently, Abernathy et al. (2017) pointed out the importance of timely audit reports for
stakeholders, including managers, regulators, shareholders, creditors and academics. As a
critical regulator, the Securities and Exchange Commission regulates specific conditions
requiring firms to file timely reports (Bryant-Kutcher et al., 2013). Likewise, academics have
produced results indicating the negative consequences of audit report lag (ARL) (Ashton
et al., 1987). As ARL is viewed as one of the most critical drivers of the credibility of financial
reporting (Abernathy et al., 2017), earlier research has sought to identify its determinants. So
far, studies have found that ARL is affected by firm-specific factors. These include
profitability (Abernathy et al., 2017), firm’s complexity, auditor characteristics (Bryan and
Mason, 2020) and nonaudit fees. This study extends this streak of empirics by studying the
relationship between firm complexity and ARL. Empirics have suggested that ARL is a
crucial measure of audit efforts. We argue that auditors view firm complexity as audit risk
and adjust efforts in response to risk; we expect a positive relation between firm complexity
and ARL. Auditors could perceive firm complexity as increasing risk. Moreover, studies
have pointed out that the sheer length and complexity of firms’ operations can lead to
auditors being misunderstood and misapplied (Bryan and Mason, 2020). Therefore, we
contend that the complexity of firm operations may delay publishing financial reports.
There is good reason to believe that firm complexity may increase ARL in GCC. The firms
must publish their financial report earlier (within 60 days) than most other economies (Baatwah
et al., 2023). This puts extra pressure on the auditor to conduct an audit within a specified time
and additional pressure added by the operation’s complexity makes the process more complex
and challenging (Naser and Hassan, 2016). The complexity may have an inherent risk
associated with difficult accounting estimates; complex firms may be willing to pay a premium
for undertaking such additional risk. If true, we would expect a more robust effort response to
the risk associated with complexity – the risk of timely audit, suggesting a negative
relationship between complexity and ARL. In a counterargument, auditors may perceive a
firm’s complexity as an audit risk and any material misjudgment may put their reputation at
risk; they are likely to exercise more efforts that may take additional time to complete the entire
process (Habib et al., 2019). This implies that complexity increases ARL.
Using a sample of 6,084 firm-year observations of nonfinancial from 2009 to 2022, we find a
positive relation between firm complexity and ARL. However, the association is not strong as we
find a 10% significance level. For further clarity, we examined whether auditor change, auditors’
tenure, audit qualified opinion and adoption of IFRS affect the relation between firm complexity
and ARL. For this purpose, we used interaction terms between firm complexity and auditor
change, auditors’ tenure, audit-qualified opinion and adoption of IFRS. As auditors change,
auditors’ tenure, audit-qualified opinion and adoption of IFRS require more effort to complete the
audit process; thus, there is a higher likelihood of larger ARL. We find audit change, auditors’
tenure and audit-qualified opinion augments the positive association between complexity and
ARL. In contrast, IFRS adoption curtails the relation. With a relatively less established accounting
and regulatory framework, GCC firms have adopted IFRS due to institutional pressures.
We also tested the curtailing effect of audit quality proxied by industrial auditor
specialization and Big-4 for in-depth analyses. We contend that audit quality may improve
the quality and timeliness of financial reports. We confer that audit firms pursue to
specialize in specific industries for some motives. These include enhancing the quality of
audits and minimizing costs by transferring knowledge about audit risks and processes
across similar clients (Dutillieux et al., 2013; Sun et al., 2020). In line with our argument,
industrial specialization curtails the positive association between complexity and ARL.
Similarly, Big-4 audit firms curtail the positive association between firm complexity and
ARL. In our additional analysis, we find that Big-4 and industrial specialization complement Moderating
each other in their association with ARL. Therefore, hiring an audit firm with both role of audit
attributes improves the timeliness of audit reports in GCC economies.
Our research adds to the body of knowledge on ARL by investigating the impact of firms’
quality
complexity on ARL. This is significant because concluding such a relation from studies focusing
on a specific market is limited in scope (Abernathy et al., 2017; Lai, 2019). Therefore, we explored
the role of firm complexity in determining ARL in a unique setting where the timeline of the audit
reports is relatively shorter. Specifically, complex firms are under scrutiny and the likelihood of a
delay in the audit process is more pronounced (Durand, 2019; Toumi et al., 2022). Consistent with
our expectations, we find complexity increases ARL. In addition, the role of associated factors
(auditor change, auditor tenure, audit-qualified opinion and adoption of IFRS) is also explored as
these factors may significantly impact ARL. Unlike previous studies, we examined the moderating
role of these factors in the association between firms’ complexity and ARL. Finally, we investigate
the curtailing effect of audit quality for a positive association between complexity and ARL. We
used audit firm industry specialization and Big-4 as proxies for audit quality (Durand, 2019;
Toumi et al., 2022). Our findings strongly support the curtailing effect of audit quality for a
positive association between complexity and ARL. Finally, we also find that audit quality
attributes (firm industry specialization and Big-4) complement their association with ARL.
Hence, our findings may be interesting for boards and audit committees of client
companies and investors because they may better understand the role of firm complexity in
determining ARL and the motivations to take measures to curtail longer ARL. This is
essential to discussing ARL and its causes in the GCC context. Our research can also help
authorities determine the causes of longer ARL. In contrast, the general findings of studies
on the relationship between firm complexity and ARL remain apparent. Our findings also
have policy implications. The paper also contributes to the agency theory by exploring the
positive role of audit quality proxied by industry specialization and Big-4. Firms with high
agency conflicts are likely to opt for better audit quality as audit quality improves the
timeliness of audit reposts. Therefore, regulators need to ensure better audit quality for
complex firms. In this way, we contribute to the lines of literature investigating the
curtailing effect of audit quality for the positive association between complexity and ARL.
We organize our paper as follows. In Section 2, we summarize audit quality studies and
present our hypotheses. Section 3 covers our methodology, sample selection and data
collection. We offer our empirical data in Section 4 and our conclusions in Section 5.

2. Theoretical background and hypotheses

One of the most famous theoretical perspectives for explaining the relationship between firm
complexity and ARL is agency theory. The agency hypothesis proposed by Jensen and
Meckling (1976) and supported by Fama and Jensen (1983) has been used to study corporate
characteristics and audit quality. Because shareholders (principals) and managers (agents)
have different interests, managers may not always act in the best interests of shareholders,
leading to agency conflicts like earning management and ARL (Oradi, 2021). The presence
of information asymmetry between principals and agents increases the risk of managers
acting against the interests of shareholders. In addition, complex firms are renowned for
agency conflicts (Kaaroud et al., 2020). These firms have stakeholders with multiple
interests that may contribute to agency conflicts (Ahmed et al., 2023). The managers often
show entrenched behavior, and in case of poor performance, they are likely to influence the
overall audit process. This may cause a delay in the audit report.
The economic impact of an ARL is global. However, most research uses Western data
(Afify, 2009). In addition, the literature fails to explore the relationship between firm
JFRA complexity and ARL (Abernathy et al., 2017). Our study is based on a GCC market with
more agency conflicts than previous studies. This may assist researchers in empirically
contributing to the literature. A sustained economic expansion is befalling throughout the
GCC. For established or aspiring financial centers like the United Arab Emirates (UAE),
Saudi Arabia, Bahrain and Qatar, reliable financial data accuracy will count more than ever.
The foundation of market and corporate confidence is accurate financial information
(Abernathy et al., 2017). Reduced information asymmetry makes timely communication
crucial to financial reporting’s credibility and trustworthiness. Every economy needs a high-
quality audit to quickly and impartially confirm the underlying figures, allowing
shareholders, investors, clients, customers and business partners to trust their activities
(Chan et al., 2016; Oussii and Boulila Taktak, 2018). Auditors in each country are subject to
the same checks and balances and this confidence can continue across different countries
and markets (Habib et al., 2019; Rusmin and Evans, 2017). The current study investigates
business complexity and ARL. Regulators that enforce standards and other regulations
need the findings. A transparent audit is vital to economies. The GCC may soon be able to
track and enhance audit quality. As companies develop globally, they require reputable
audit and accounting services. There is no study on whether audit quality diminishes the
positive association between company complexity and ARL. Our research contributes to the
literature.

2.1 Organizational complexity and audit report lag

Organizational complexity was estimated by business size. There are favorable and negative
views on firm size and AR relationship. The optimistic view holds that major corporations will
hire larger audit firms with more resources to complete the audit process quickly (Al-Ghanem
and Hegazy, 2011). Larger firms can afford specialized auditors and have more extensive
finances and operations to examine. They pay more for timely audits and the auditor’s extra
efforts. They also have stronger internal control systems, which speed up response. Large
corporations are under market scrutiny and delays in the annual report may create stakeholder
uncertainty and lower stock prices. Thus, they complete audits faster, so annual reports should
be issued on time (Afify, 2009; Nelson and Shukeri, 2011).
The proponents of the opposing view argue that larger firms have business segments
and foreign sales, which add to the complexity of operations (Nazatul Faiza Syed Mustapha
Nazri et al., 2012; Woo and Koh, 2001). A firm involved in business segments often presents
a complex accounting system, making auditing more complex and hard to manage.
Likewise, larger firms’ sales segment includes exports, sales to nontax entities and provision
of goods to the government (Habib et al., 2019), which adds to the complexity and makes the
auditing task harder. External auditors perceive complexity as audit risk, as auditing a
complex firm’s account may involve a greater probability of material errors (Bamber et al.,
1993). This may put the auditor’s reputation at risk. Therefore, a more prominent firm often
has business segments that signal greater complexity (Durand, 2019). These firms are also
criticized for having the problem of information asymmetry that increases agency conflicts.
Empirics also suggests that when a firm presents complex financial reports, external
auditors are likely to devote more effort through additional audit processes, increasing ARL
(Durand, 2019). Furthermore, GCC presents an avenue where firms are required to complete
the audit process relatively earlier, and the need to research the role of complexity in ARL is
more timely and relevant. We confer with the negative views in the GCC context and
hypotheses as under:

H1. Firm complexity increases ARL in nonfinancial-listed firms in GCC.

2.2 Curtailing effect of audit quality Moderating
A succession of accounting scandals in the early 2000s and some signs of audit quality role of audit
decline have increased public demand for high-quality audits (Dunn and Mayhew, 2004) and
extensive audit inquiry. The increased demand for high-quality audits may result from
quality
additional benefits such as seeking investors’ confidence and better market value (Chalu,
2021; Lin and Hwang, 2010). Due to rising demand, audit companies streamline their
divisions with more specialized employees and resources (Balsam et al., 2003). Audited
financial statements’ reliability benefits capital markets and allocation decisions (Rusmin
and Evans, 2017). Empirics have recognized the effect of audit quality among listed firms
(Rusmin and Evans, 2017). The direct impact may support the role of audit quality but it
leaves challenges like the complexity that a firm may face in an entirely timely audit. Thus,
our study tackles the question by investigating how audit quality reduces complexity and
ARL.
Big-4 and audit firm industry specialization were used as audit quality proxies. Over
time, studies have found that Big-4 audit companies perform faster, higher-quality audits.
Big-4 corporations had superior earnings quality, fewer restatements, lower capital costs
and stronger analyst forecasts (Meckfessel and Sellers, 2017; Rusmin and Evans, 2017).
Big-4 firms’ financial statements are more reliable and accurate than non-Big Four
enterprises (Rusmin and Evans, 2017). Despite substantial empirical proof of the Big 4’s
effect, nothing is understood about their restricting effect. As anticipated to perform timely
and qualitative audits, Big-4 audit firms have a greater stake in audit quality (Habib et al.,
2019). These firms have the resources to combat auditing complexity (Chan et al., 2016).
Large professional public accounting organizations, the Big-4, offer audit, financial
counselling, taxes, consulting, risk advisory and actuarial services (Dao and Pham, 2014).
Audit methods and internal control systems boost performance and quality.
In contrast, we argue that Big-4 perceives more risk in auditing complex firms as any
material mistake in the audit process may put their take at risk (Imen and Anis, 2021).
Likewise, they are under market scrutiny because of high expectations and value relevance
(Chen et al., 2022). They are more stringent in monitoring and provide more substantial
incentives for high-quality work (Mulchandani and Mulchandani, 2022). Therefore, it looks
like the Big-4 audit firms deliver timely audits but the inference may be invalid. We contend
with the argument that Big-4 firms do something unique from their counterpart, for
instance, by having advanced technology and efficiency in managing the task (Rusmin and
Evans, 2017), which enhances their performance and quality. However, the view does not
guarantee the timeliness of the audit process. Furthermore, the direct impact of Big-4 on
ARL may be selection biased, leaving their role in challenging conditions unexplored
(Abdillah et al., 2019). The current study empirically investigates their curtailing effect in the
positive association between firm complexity and ARL. For analysis purposes, we construct
the following hypothesis:

H2a. Big-4 audit firm curtails the relationship between firm complexity and ARL in
nonfinancial-listed firms in GCC.
Our second audit quality proxy is audit firm industry specialization. Empirical information
on audit firm industry specialization and ARL is sparse. Notably, the limiting effect of audit
firm industry specialization has not been examined in complex business environments and
GCC economies. Our study is particularly significant in GCC economies as firms must report
financial reports on schedule. Considering the direct effect of audit company industry
specialization on ARL, it may reduce the positive relationship between firm complexity and
ARL. Research shows that firm and auditor factors affect ARL (Bryan and Mason, 2020;
JFRA Lai, 2019). The curtailing effect of audit firm industry specialization needs more research as
firm complexity may limit its efficiency in the GCC.
Prior studies show that audit firm industry specialization enhances its expertise and
experience in detecting errors within its domain (Geiger et al., 2022). Industry-specialized
auditors have dealt with the issues that are more common in nature and their procedural
alignments. They are likely to meet the industry’s competence requirements (Hegazy and
Hegazy, 2018). They possess the necessary skills and competence to have clients in a
particular sector (Liao et al., 2022). They also take steps to develop competency, for instance,
through proper staff training (Chen et al., 2022).
Nevertheless, an audit firm with industry specialization properly considers competence
(Habib et al., 2019). Providing workers with additional help and direction should make these
audits easier to organize and execute. An audit firm’s sector specialization can give timely
audit evidence in complex ARL situations (Bryan and Mason, 2020). We predict audit firm
industry specialization to reduce the favorable correlation between company complexity and
ARL. Thus, audit firm industry specialization reduces the favorable effect of complexity on
ARL. Thus, we hypothesize:

H2b. Audit firm industry specialization curtails the relationship between firm
complexity and ARL in nonfinancial-listed firms in GCC.

3. Methods and results

3.1 Sample description
Our sample consists of 6,084 firm-year observations of nonfinancial-listed firms from 2009
to 2022 from GCC economies. Financial firms are excluded because of their variable
structures. The period selection is based on specific criteria. Initially, 2009 is selected as a
starting year to avoid the global financial crises (GFC) 2007–2008 impact. The financial
reporting quality was affected by the GFC. Furthermore, we also included a COVID-19
dummy to control the estimation biased. In addition, as the number of listed firms varies
across years, we included only those firms that remained listed once included in our panel.
In addition, we obtained financial data from Thomson Reuters and published reports. We
also included those firms that made their financial report available on their websites. This
restricted our sample significantly and led us to use unbalanced panel data from 2009 to
2022. The data description is provided in Table 1. As the number of firms significantly
varies across sectors, we used a two-digit SIC code to classify the firms in industries. In
Panel B, we reported the sector-wise division of firms. Overall, the panel included most firms
from the Kingdom of Saudi Arabia, followed by the UAE.

3.2 Independent and dependent variables

This study examined three proxies of ARL: the difference in days between the fiscal year-
end date and the audit report signature date and the natural logarithm of ARL. It controlled
outliers and nonlinearity in ARL. The industry-adjusted ARL (AdjARL) and stationary data
may also improve findings (Jaggi and Tsui, 1999). AdjARL was computed by deducting the
firm’s ARL from the industry median (Baatwah et al., 2015; Mande and Son, 2011).
The natural logarithm of total assets measures firm complexity, our test variable. We
measure it by exports and business segments also. We also used two audit quality proxies.
First, Big-4 is a dummy variable if Big-4 audits a firm and 0 otherwise (Choi et al., 2008). We
also used a dummy variable: one if an industry specialist auditor audits a firm and 0
otherwise (Minutti-Meza, 2013).
Year UAE Bahrain KSA Oman Qatar Kuwait Total
Moderating
2009 105 18 128 58 26 73 408 role of audit
quality
Panel A – country-wise firm divisions
2010 107 20 130 60 28 75 420
2011 107 20 130 61 28 75 421
2012 111 21 134 61 29 79 435
2013 111 21 134 61 29 79 435
2014 111 21 134 61 29 79 435
2015 113 21 135 61 27 81 438
2016 113 21 136 62 29 81 442
2017 113 21 136 62 29 81 442
2018 113 21 138 62 29 81 444
2019 113 21 138 62 29 81 444
2020 113 21 138 62 29 81 444
2021 113 21 138 62 29 81 444
2022 113 21 138 62 29 81 444

Panel B – sector-wise firm divisions

Industry SIC No. of firms
Mining and minerals extraction 1 124
Tobacco, food and related 2 77
Primary manufacturing, industrial manufacturing, electronics, etc. 3 80
Retail, wholesale and related 5 97
Personal, auto, hotels etc. 7 66

Notes: The table includes the country-wise description of firms included in the main sample. Only listed Table 1.
firms are included in the sample Data description
Source: Authors’ own creation (country-wise)

3.3 Control factors

We control for several variables in our models to improve internal validity and establish a
correlational or causal relationship between variables of interest and avoid research bias.
We split control factors into CEO level, corporate governance and financial variables. CEO-
level controls include age, tenure and duality (Habib et al., 2019). Habib et al. (2019) pointed
out the role of the CEO level on ARL. CEO age, tenure and duality are controlled because
these variables indicate the influence of CEO attributes on ARL (Oradi, 2021). CEO age
demonstrates that mature CEO is associated with better audit quality. In contrast, longer
CEO tenure exhibits entrenched behavior and poor internal control (Lin et al., 2014).
Likewise, CEO duality is associated with weak corporate governance mechanisms, as CEOs
with duality roles are likely to influence corporate board decision-making (Oradi, 2021).
Furthermore, we also included board independence and gender diversity as proxies of
the effectiveness of corporate governance. Following an earlier study on governance and
audit association, we expect a negative association between effective governance and ARL
in GCC economies. Board independence and gender diversity are associated with better
governance and audit quality (Ammer and Ahmad-Zaluki, 2017). Therefore, we expect them
to curtail ARL. We also control for audit committee characteristics because the audit
committee has an essential role in ARL. The number of audit committee meetings in a
financial year measures audit committee diligence. The variable shows the diligence of audit
committee in following and completing timely audit. Similarly, audit committee size
determines the human resources internally employed by a firm in audit.
JFRA Following the research on ARL, financial leverage, firm age, market-to-book value,
profitability and going concern are expected to impact ARL (Bryan and Mason, 2020; Oradi,
2021). Financial leverage represents the risk associated with the firm’s operation and higher
leverage is expected to increase ARL (Rusmin and Evans, 2017). However, business age,
market-to-book value, profitability and going concern may lower ARL. Year and industry-
fixed effects controlled for variation across industries and time.
The conceptual framework of the manuscript is provided in Figure 1.

3.4 Descriptive statistics and correlation

The study offers descriptive statistics and correlation in Table 2. The correlation between
the two variables is below the 0.7 multicollinearity criterion. Note that the Variance inflation
factor (VIF) also measures multicollinearity. VIF assesses multicollinearity in regression
variables. VIF for a regression model variable is the model variance ratio to the variance
that contains only that independent variable. The VIF of each variable is below an
acceptable level of 10, which justifies our claim that there is no issue of multicollinearity in
our model. Descriptive statistics of our variables are also reported in Table 2. Only the mean
and standard deviation values of variables are provided from descriptive statistics analysis.
ARL has a standard deviation value of 6.97. The sample firms have board independence of
31.00%. Gender diversity has a mean value of 0.182, indicating that 18.2% of the board
members are female on average. A natural log of total assets measures firm complexity; its
mean value is 12.15, with a standard deviation of 2.63. The mean value of Big-4 is 0.51,
implying that Big-4 audits 51% of firms. Similarly, the audit firm industry specialization is
0.68, which means an industry-specialized auditor audits 68% of firms. The value of other
control variables is reported in Table 2.

3.5 Model specification

First, we examined the effect of firm complexity on ARL. Following earlier research, we
used the ordinary least square regression model to identify the association between

AUDIT QUALITY

AUDIT FIRM INDUSTRY

BIG-4
SPEACIALIZATION

H2a H2b

FIRM
COMPLEXITY ARL
H1

Control factors
Figure 1.
Conceptual
framework
Source: Authors’ own creation
Variables Mean S/D VIF 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

ARL (1) 71.28 6.97 1.00

CEO duality (2) 0.28 0.50 2.39 0.02 1.00
Board gender
diversity (3) 0.182 1.96 1.69
0.12**
0.15*** 1.00
CEO tenure (4) 6.29 4.11 1.66 0.05
0.01
0.08 1.00
Audit committee
size (5) 3.30 0.52 2.87
0.15**
0.13** 0.04
0.02 1.00
Firm industry
specialization (6 0.68 0.47 1.98
0.13***
0.12** 0.34**
0.01 0.13** 1.00
Big-4 (7) 0.51 0.50 2.25
0.10*** 0.07 0.09** 0.04 0.09 0.39** 1.00
Auditor change (8) 0.39 1.24 3.70
0.03 0.01 0.01
0.14** 0.12*** 0.17** 0.05 1.00
Audit fee (9) 0.17 1.77 1.87
0.14*** 0.09** 0.11**
0.06 0.15*** 0.42** 0.34*** 0.62*** 1.00
Auditor tenure (10) 1.98 0.81 3.99
0.12*** 0.03 0.08 0.03
0.05 0.02 0.01 0.46*** 0.10** 1.00
Qualified opinion (11) 0.08 0.27 2.22 0.24*** 0.04
0.22** 0.12**
0.09** 0.04 0.01
0.37***
0.45***
0.17*** 1.00
Audit committee
diligence (12) 5.75 1.51 1.86
0.08**
0.23*** 0.14** 0.06 0.04 0.02 0.02
0.03 0.01 0.34
0.23*** 1.00
Board
independence (13) 0.31 2.18 1.89 0.10
0.11 0.05 0.05 0.04 0.00
0.02 0.02 0.01 0.14
0.12 0.15 1.00
Financial
leverage (14) 2.99 2.57 2.67 0.29*** 0.14**
0.14** 0.12**
0.04
0.18*** 0.02 0.03
0.12**
0.12 0.44*** 0.06
0.13*** 1.00
Firm complexity (15) 12.15 2.63 2.16
0.11** 0.12** 0.09**
0.02 0.04 0.24*** 0.03 0.02 0.01
0.05
0.27** 0.25 0.39***
0.31 1.00
Firm age (16) 21.27 3.01 1.95
0.03 0.04 0.03 0.02 0.11 0.01 0.03
0.02 0.02
0.23
0.42*** 0.51 0.12***
0.05 0.17*** 1.00
Profitability (17) 5.68 1.06 1.55
0.08
0.05 0.07**
0.07** 0.02 0.10**
0.04
0.01 0.01
0.21
0.10 0.34 0.14***
0.04 0.22*** 0.14*** 1.00
IFRS adoption (18) 0.47 0.40 2.77
0.15***
0.01 0.22*** 0.02 0.14*** 0.04 0.21***
0.02 0.12***
0.01
0.05 0.02 0.07 0.16** 0.31** 0.39*** 0.27*** 1.00
Market to book
value (19) 1.12 1.55 3.44
0.02
0.01 0.19** 0.01 0.12 0.02 0.18**
0.01 0.10** 0.09 0.01 0.20** 0.01 0.12** 0.02 0.02 0.19** 0.01 1.00

Notes: Table 2 provides descriptive statistics, variance inflation factors and correlation. We only provided the variables’ means and standard deviation (s/d) for brevity. ***p < 0.01; **p < 0.05
Source: Authors’ own creation

matrix
role of audit

VIF and correlation

Descriptive statistics,
Table 2.
quality
Moderating
JFRA independent variables and ARL (Cohen and Leventis, 2013). For this purpose, we used the
following regression model:

ARLi ¼ b0 þ b1 Firm complexityi þ b2 control factorsi þ b3 year effecti

þ b4 industry effecti þ b5 country effecti þ b6 covid effecti þ «i (1)

In Model 1, we used three proxies of ARL (AR, LnARL and AdjARL). For each proxy, we
used separate regression. For H2a and H2b, the following regression is used:

ARLi;t ¼ b0 þ b1 Firm complexityi;t þ b2 audit qualityi;t þ b3 Firm complexity * audit qualityi;t

þ b4 control factorsi;t þ b5 year effecti;t þ b6 country effecti;t þ b7 industry effect

þ b8 covid effect þ «i;t (2)

In equation (2), two interaction terms between firm complexity and audit quality (i.e. firm
complexity*Big-4 and firm complexity*audit firm industry specialization) are used to test
the moderation effect. All other variables are the same as mentioned in equation (1).

4. Results
The results are in Table 3. Data analysis was done with E-views. Using the Hausman test
(also known as the Hausman specification test), Garcia-Castro et al. (2010) find endogenous
regressors in regression models. Model variables influence endogenous variables. The value
of Durbin–Wu–Hausman F-statistics is statistically insignificant, reflecting that our model
has no concern for endogeneity.
As we have used three different constructs of ARL, we used three models to empirically
explore the association between firm complexity and ARL. Consistent with our H1, we find
positive effects of firms’ complexity on ARL in GCC countries (p < 0.10: refer to Models 1–3 in
Table 3). Our H1 is supported, implying that firm complexity [1] increases ARL. This also
aligns with earlier studies that supported the positive association between firm complexity and
ARL (Coffie and Bedi, 2019). Complex firms also have multiple business divisions and auditing
for these segments complicates the auditor’s job, resulting in a larger ARL. Furthermore, the
size effect is constant regardless of the ARL proxies used in models. Our thesis also holds that
larger firms are more complicated, with more apparent agency conflicts (Yeboah et al., 2023).
As a result, our findings hold for all three ARL proxies in GCC economies.
Among CEO control factors, CEO duality and tenure increase ARL (p < 0.05; refer to
Models 1–3). CEOs with a dual role have the power to impair board effectiveness and the
dual role empowers them to influence the audit process, resulting in audit delay. In emerging
markets, CEO duality is associated with a high level of agency conflicts (Oradi, 2021). Our
findings align with the argument that CEO duality and tenure increase agency conflicts
(Al-Ebel et al., 2020) as we find a positive impact of CEO duality and tenure on ARL.
Nevertheless, CEO age does not have any significant impact on ARL. In addition, both
governance measures (board independence and gender diversity) do not impact ARL. This
shows the ineffectiveness of corporate governance in GCC economies (Oradi, 2021; Shehata,
2015). We also control for audit committee diligence and size. We discovered that audit
committee diligence and size negatively and statistically significantly affect ARL (Models
1–3 in Table 3). In comparison, audit committee size has a higher level of significance (p <
0.05), which implies that audit committee size has a comparatively more prominent role in
reducing ARL than audit committee diligence (p < 0.10).
 ARL LnARL AdjARL
Moderating
M-1 M-2 M-3 role of audit
Independent and control variables Coef SE Coef SE Coef SE quality
Firm complexity 0.198* 0.114 0.185* 0.101 0.179* 0.099
CEO level control
CEO age 0.006 0.005 0.007 0.005 0.006 0.005
CEO tenure 0.122* 0.063 0.105* 0.060 0.088* 0.062
CEO duality 0.188** 0.085 0.135** 0.065 0.139** 0.066
Governance control
Board independence
0.081 0.075
0.041 0.034
0.052 0.036
Board gender diversity
0.015 0.014
0.037 0.031
0.038 0.027
Audit committee characteristics
Audit committee diligence
0.099* 0.058
0.067* 0.039
0.049** 0.031
Audit committee size
0.194** 0.086
0.136** 0.062
0.122** 0.052
Firm characteristics
Financial leverage 0.261** 0.116 0.184** 0.086 0.199** 0.093
Firm age
0.059* 0.031
0.047* 0.028
0.062* 0.034
Market to book value
0.077** 0.039
0.079** 0.040
0.082** 0.041
Profitability
0.283* 0.157
0.171** 0.086
0.183** 0.097
Going concern
0.013* 0.008
0.014* 0.008
0.012* 0.007
Year fixed effect Yes Yes Yes
Industry fixed effect Yes Yes Yes
Country effect Yes Yes Yes
COVID-19 effect Yes Yes Yes
R-squared 0.411 0.420 0.417
Adjusted R-squared 0.400 0.410 0.407
Prob (F-statistic) 0.000 0.000 0.000
Durbin–Watson stat 1.833 1.812 1.822
Durbin–Wu–Hausman F-statistics 3.22 (p ¼ 0.52) 3.19 (p ¼ 0.61) 3.09 (p ¼ 0.56)

Notes: For each proxy, we used a separate model. Parenthesis shows robust standard errors. Table 3.
***, ** and *represent 1, 5 and 10% levels of significance, respectively. I-refers to the controlling factor Firm complexity
Source: Authors’ own creation and ARL

Among controls, financial leverage has a positive and statistically significant impact on
ARL (p < 0.05; refer to Models 1–3 in Table 3). Thus, the firms exposed to the problem of
high leverage often delay their audit report. On the other hand, firm age, market-to-book
value, profitability and going concern statement reduce ARL in GCC economies (Habib et al.,
2019). We also control our models’ year, industry, CIVID and country effects to reduce
estimation bias or measurement deficiency. Consistent with our expectation, we found
similar findings of control factors as reported in the literature.
One can argue on the subjectivity of our findings as the association between complexity
and ARL may rely on certain factors that augment the relation. Therefore, to strengthen our
argument, we used auditor change, auditor tenure, auditor-qualified opinion and adoption of
IFRS (Yamani and Almasarwah, 2019) as factors that may influence the association between
complexity and ARL. The interaction terms between complexity and the variables (auditor
change, auditor tenure, audit qualified opinion and adoption of IFRS) are the variables of
concern. The results are reported in Table 4. To avoid any estimation bias, we used separate
regression for each interaction term (Arifuddin and Usman, 2017). Before introducing the
 ARL
JFRA

Table 4.
Subjectivity of

firm complexity and

relationship between
ARL LnARL AdjARL
Variables 1 2 3 4 5 6 7 8 9 10 11 12

Firm complexity 0.187* 0.168* 0.153* 0.150* 0.153* 0.155* 0.149* 0.148* 0.153* 0.157* 0.152* 0.144*
Auditor change 0.037 0.040 0.042
Auditors’ tenure
0.371**
0.385**
0.344**
Audit qualified opinion 0.221** 0.230** 0.205**
Adoption of IFRS
0.123*
0.141*
0.135*
Interaction terms
Firm complexity*auditor change 0.170*** 0.115** 0.109**
Firm complexity*auditors’ tenure 0.128** 0.085** 0.094**
Firm complexity*auditor-qualified opinion 0.310*** 0.230*** 0.205***
Firm complexity*adoption of IFRS 0.006 0.004 0.007
D in coefficient estimates (interaction term- F¼ F¼ F¼ F¼ F¼ F¼ F¼ F¼ F¼ F¼ F¼ F¼
direct impact) 7.21** 6.08** 19.15*** 1.03 6.55** 8.14** 22.91*** 2.54 9.00** 6.18** 18.47*** 2.06
CEO level control Yes
Year, industry, COVID and country-fixed effect Yes
Notes: We used a separate model for each interaction term. For each proxy, we used a separate model. ***p < 0.01; **p < 0.05; *p < 0.1. I-represents the control
variables included in the model
Source: Authors’ own creation
interaction term, we examined these variables’ direct effects on ARL. Auditor tenure and Moderating
audit-qualified opinion improve GCC ARL with positive and statistically significant role of audit
coefficient estimations. In coefficient assessments and significance, auditor-qualified opinion
had the strongest positive association with ARL. In contrast, we find a positive association
quality
between IFRS adoption and ARL (p < 0.10; Table 4).
However, interaction terms are our variables of concern. As per the findings in Table 4,
all the interaction terms between auditor change, auditor tenure, audit qualified opinion and
ARL are positive and statistically significant (p < 0.01; refer to Table 4). Furthermore, we
calculated the difference in coefficient estimates between the direct impacts of auditor
change, auditor tenure, audit qualified opinion and their interaction terms. We used F-tests
to measure the difference in coefficient estimates and their significance level. The difference
in coefficient estimates between direct impacts of auditor change, auditor tenure, qualified
audit opinion and their interaction terms are positive and statistically significant, which
implies that auditor change, auditor tenure and audit-qualified opinion augment the positive
association between firm complexity and ARL in the GCC context. In comparative terms, the
difference in coefficient estimates of auditor-qualified opinion and its interaction term is
significantly high in terms of coefficient estimates and significance level.
However, the IFRS adoption and complexity relationship is statistically insignificant.
IFRS does not reduce the favorable relationship between corporate complexity and ARL.
According to our findings, a change in auditor, tenure or qualified opinion increases the link
between corporate complexity and ARL. However, IFRS adoption does not enhance the
relationship. We included all those control factors that are a part of our primary model. For
conciseness, we bottled up the findings of control factors.

5. Curtailing effect of auditor quality

The curtailing effect of the external auditor on a positive association between corporate
complexity and ARL was empirically examined. We used Big-4 and audit firm sector
specialization to reduce the positive relationship between company complexity and ARL.
We regressed each interaction term independently to avoid estimate bias as ARL has three
constructs. We regressed six models to examine how external auditors (Big-4 and audit firm
industry specialization) reduce the positive correlation between firm complexity and ARL.
Our Model 1 control factors were also applied.
Our model includes Big-4 and audit firm sector specialization factors to experimentally
examine external auditors’ curtailing effect on ARL. Big-4 and audit firm industry
specialization negatively correlate with ARL (p < 0.05; see Models 1–6 in Table 5). Direct
relations reveal that Big-4 and audit firm industry specialization considerably reduces ARL
in GCC economies. The findings support previous research showing that Big-4 and audit
firm industry specialization negatively affect ARL (Abdillah et al., 2019; Rusmin and Evans,
2017). However, interaction terms are our concern because we projected both variables
would reduce the positive association between firm complexity and ARL. The study found
that Big-4 mitigates the detrimental impact of company complexity on ARL in GCC
economies (p < 0.05; see Columns 1, 3 and 5 in Table 5). As they have significant incentives
to provide timely audit reports, Big-4 audit firms provide them faster than non-Big-4. Also,
they have qualified staff and resources to manage audit processes (Hasballah and Ilyas,
2019). Most crucially, from a qualitative standpoint, quality audits are an indispensable
agent of change for manufacturing with global operations (Habib and Huang, 2019).
Audit firm industry specialization is our second auditor-associated attribute. The
interaction terms between firms’ complexity and audit firm industry specialization are also
reported in Table 5 (refer to Columns 2, 4 and 6). Findings show that all interaction terms are
JFRA ARL LnARL AdjARL
Independent and control variables 1 2 3 4 5 6

Firm complexity 0.182* 0.183* 0.192* 0.190* 0.188* 0.184*

BIG-4
0.122**
0.110**
0.117**
Audit firm industry specialization
0.184**
0.187**
0.183**
Interaction term
Firm complexity * Big-4
0.104**
0.081**
0.098**
Firm complexity * audit firm
0.053**
0.071**
0.045**
industry specialization
CEO level control Yes Yes Yes Yes Yes Yes
Governance control Yes Yes Yes Yes Yes Yes
Audit committee characteristics Yes Yes Yes Yes Yes Yes
Firm characteristics Yes Yes Yes Yes Yes Yes
Year effect Yes Yes Yes Yes Yes Yes
Industry effect Yes Yes Yes Yes Yes Yes
Country effect Yes Yes Yes Yes Yes Yes
COVID-19 effect Yes Yes Yes Yes Yes Yes
R-squared 0.417 0.426 0.423 0.422 0.432 0.428
Adjusted R-squared 0.405 0.416 0.413 0.411 0.421 0.418
Prob (F-statistic) 0.000 0.000 0.000 0.000 0.000 0.000
Durbin–Watson stat 1.833 1.812 1.822 1.833 1.812 1.822
Durbin–Wu–Hausman 3.44 4.70 3.26 2.91 3.08 4.15
F-statistics (p ¼ 0.39) (p ¼ 0.27) (p ¼ 0.31) (p ¼ 0.48) (p ¼ 0.43) (p ¼ 0.61)
Table 5.
Curtailing effect of Notes: ***p < 0.01; **p < 0.05; *p < 0.1. I-represents the control variables included in the model
audit quality Source: Authors’ own creation

negative and statistically significant (see Columns 2, 4 and 6 in Table 5). Based on these
findings, it is reasonable to conclude that audit firm industry specialization curtails the positive
impact of firms’ complexity on ARL in GCC economies. The results may be attributed to
designated audit firm industry specialization to improve audit efficiency, which successfully
empowers firms with industrial specialization to discriminate them from rivals (Dao and Pham,
2014). In addition, industry-specialized auditors use technological developments, facilities,
employees and firm control systems to improve their audit efficiency.

6. Additional analyses
6.1 Proxies of firm complexity and audit report lag
Business segments, overseas sales and mergers and acquisitions are external indicators of
organizational complexity (Woo and Koh, 2001). More business sectors, international sales
and a merger, acquisition or joint venture can imply increasing complexity in a firm’s
operation and a larger risk of severe blunders (Bamber et al., 1993). Thus, company
segments and foreign sales indicate corporate complexity.
We used a similar regression as in our main model. The findings are reported in Table 6. As
we have used three different constructs of ARL, we used three models to empirically explore the
association between firm complexity and ARL. In Table 6, Models 1–3 represent the association
between firms’ complexity and ARL (three proxies). Consistent with our main findings reported
in Table 3, we find positive effects of firms’ complexity on ARL in GCC countries (p < 0.10: refer
to Models 1–3 in Table 6). Similarly, the association between firm complexity (measured by the
percentage of foreign sales to total sales) is also aligned with our main findings reported in
Table 3. The association of control factors is similar, as reported in Table 3. However, we find
 Business segment Export sales
Moderating
ARL LnARL AdjARL ARL LnARL AdjARL role of audit
M-1 M-2 M-3 M-4 M-5 M-6 quality
Independent and control variables ß ß ß ß ß ß

Firm complexity 0.158* 0.153* 0.157* 0.155* 0.156* 0.162*

CEO level control Yes Yes Yes Yes Yes Yes
Governance control Yes Yes Yes Yes Yes Yes
Audit committee characteristics Yes Yes Yes Yes Yes Yes
Firm characteristics Yes Yes Yes Yes Yes Yes
Year, industry, country and COVID-fixed effect Yes Yes Yes Yes Yes Yes
R-squared 0.403 0.412 0.409 0.408 0.418 0.414
Adjusted R-squared 0.392 0.402 0.399 0.397 0.407 0.404
Durbin–Watson stat 1.772 1.752 1.762 1.772 1.752 1.762

Notes: For each proxy, we used a separate model. For brevity, only coefficient estimates are provided.
***p < 0.01; **p < 0.05; *p < 0.1; Durbin–Wu–Hausman F-statistics value is 2.98 (p ¼ 0.66). I-represents Table 6.
the control variables included in the model Proxies of firm
Source: Authors’ own creation complexity and ARL

minor variations in coefficient estimates, which are negligible in the context of the current study.
In conclusion, we find a positive association between firm complexity and ARL in GCC
countries. Our findings are robust to different measures of complexity.

6.2 Propensity score matching technique

Our findings may be subject to sample selection bias as both external auditor attributes may
be endogenously determined (Burnett et al., 2018). As the auditors are expected to manage
the audit risk efficiently and effectively, one can further argue that firm executives might be
motivated to hire an external audit firm with industry specialization or Big-4 (Burnett et al.,
2018). In a counterargument, it can also be claimed that these auditors (Big-4 and specialists)
will likely retain clients with more robust financial and internal control prospects. These
may lead our findings to a biased conclusion. We used propensity score matching (PSM) to
address both panels’ concerns (Burnett et al., 2018).
Before applying PSM, we identify the factors that significantly differ in firms audited by
Big-4 and industry specialized with those audited by non-Big-4 and nonindustry
specialization. First, we categorize our sample firms into Big-4 (110) and non-Big-4 (334). We
run a t-test to identify factors that may be potentially different between the two groups.
Following prior research, we used CEO age, firm age, size, profitability and leverage (see
Panel A in Table 7). Findings show that firms audited by Big-4 are significantly larger, less
profitable and highly levered. However, we find no significant difference in CEO and firm
age between both samples. In Panel B, we repeated the same procedure and found that firm
age, size, profitability and leverage significantly differ in firms audited by specialized firms.
We used only significantly different factors in both panels based on these results. Following
PSM, our sample is divided into treatment and control groups. Firms audited by Big-4 are
included in the treatment group, whereas the control group comprises firms audited by non-
Big-4. In Panel B, we again run a t-test to confirm the validity of our treatment and control
groups. The findings show no statistically significant difference in the mean value of both
groups. The process led us to sample 196 firms, including 98 firms audited by Big-4 and 98
control groups. Similarly, Panel B includes 220 firms, including 110 firms audited by the
specialized audit firms and 110 by their counterpart (audited by nonspecialized audit firms).
JFRA Panel A (prematch) Panel B (prematch)
Big-4 Non-Big-4 Specialized Nonspecialized
audited firm audited firm audited firm audited firm
(N ¼ 98) (N ¼ 305) (N ¼ 122) (N ¼ 281)
Parameters Mean Mean Difference Mean Mean Difference

CEO age 52.182 50.163 1.040 53.41 51.34 2.07

Firm age 21.355 22.019 0.970 21.86 22.54
0.68
Firm size 8.256 6.015 2.206** 8.45 6.16 2.29***
Profitability 4.234 6.523
1.767*** 4.33 6.68
2.34**
Leverage 2.189 2.843
0.770** 2.24 2.91
0.67***

Panel A (postmatch) Panel B (post-match)

Big-4 Non-Big-4 Specialized Nonspecialized
audited firm audited firm audited firm audited firm
(N ¼ 86) (N ¼ 86) (N ¼ 104) (N ¼ 104)
Variables Mean Mean Difference Mean Mean Difference
CEO age 53.133 52.824 0.309 50.614 49.367 1.247
Firm age 21.744 21.017 0.727 20.713 19.068 1.645
Firm size 7.574 6.220 1.354 7.215 5.925 1.290
Profitability 5.320 5.973
0.653 4.115 5.690
1.575
Leverage 2.280 2.734
0.453 2.172 2.604
0.432

Panel C Logit regression Panel D Logit regression

Panel C Prematch Postmatch Prematch Postmatch
Variable Coefficient p-value Coefficient Coefficient p-value Coefficient
Intercept 5.457*** P < 0.01 3.326*** 2.286*** P < 0.01 3.402***
CEO age 0.162** P < 0.05 0.042 0.147** P < 0.01 0.047
Firm age 0.015 P ¼ 0.263 0.013 0.035** P < 0.05 0.019
Firm size 0.150** P < 0.05 0.081 0.093*** P < 0.01 0.020
Profitability 0.084* P < 0.10 0.074 0.081** P < 0.05 0.016
Leverage
0.101** P < 0.05
0.088
0.098* P < 0.10
0.011
Year dummy Yes Yes Yes Yes
Industry dummy Yes Yes Yes Yes
Country dummy Yes Yes Yes Yes
Pseudo R2 0.091 0.668 0.102 0.677

Notes: We created two subsamples based on PSM technique. We provided results of pre- and post-match
Table 7. samples. After matching samples, we regressed logit regression for both samples. ***p < 0.01; **p < 0.05;
Propensity score *p < 0.1
matching Source: Authors’ own creation

Table 7 shows the results of a postmatch sample t-test comparing treatment and control firms
in both panels for clarity. Postmatch analysis shows no significant variations in variables of
concern. The findings corroborate our PSM strategy. We use logit regression for pre- and
postmatch samples. We set a dummy in Panel C to 1 if Big-4 audits a firm and 0 otherwise.
Similarly, we created a dummy in Panel D based on specialized and nonspecialized audit
firms. The results in both panels show that the variables of concern have an insignificant
impact on the dependent variable (Big-4 dummy and specialized audited dummy). Again,
our selection of PSM is strongly supported.
In addition, the value of Pseudo R2 in the logit regression is 0.668 and 0.672, which is
relatively higher than 0.091 and 0.102, respectively, in postmatch regression (refer to Table 7;
Panel C). More importantly, the sample selected on a PSM basis confirms the “equal trend” Moderating
assumption between the groups, which helps the researcher encounter the endogeneity concern. role of audit
Table 8 shows the results of rerunning Model 2 on the PSM sample. In Sample A, we
empirically examined Big-4’s curtailing role towards business complexity and ARL
quality
relationship. As shown in Table 8, the indicator signals and significant level for coefficient
estimates of explanatory factors in both subsamples (Specialist and Big 4) match our
primary findings in Table 5. However, coefficient estimates varied somewhat, which is
inconsequential in this investigation.
Similarly, we also reported findings on the curtailing effect of audit firm industry
specialization (refer to table). Again, we found robustness in our main findings. Through PSM,
we can address the following concerns. First, our findings disprove that industry specialists or
Big-4 auditors may incentivize firms by ensuring efficient and successful audits. Second, expert
and Big-4 auditors prefer customers with excellent internal control systems, strong finances
and low insolvency risk. These findings support Tables 4 and 5’s key conclusions.

6.3 Complementary or substitution role

As reported earlier, this study found that audit firm industry specialization and Big-4
restrict the positive association between firm complexity and ARL, which implies that firms
audited by industry-specialist auditors and Big-4 have shorter ARL. Furthermore, finding
their complementary or substitution role is imperative as both audit quality constructs have
curtailing effects on the association between complexity and ARL. We have used ARL,
LnARL and AdjARL as proxies for ARL. We explored the complementary or substitution
role of specialist auditors and Big-4 auditors in these proxies. For this purpose, we
constructed three subsamples based on these proxies to test the complementary or
substitution role of audit firm industry specialization and Big-4 auditors.

ARL LnARL AdjARL

Independent and control variables 1 2 3 4 5 6

Firm complexity 0.112* 0.100* 0.095* 0.090* 0.089* 0.110*

BIG-4
0.131**
0.125**
0.120**
Audit firm industry specialization
0.096**
0.090**
0.088**
Interaction term
Firm complexity * BIG-4
0.122**
0.101** –
0.110**
Firm complexity * audit firm
0.066**
0.068**
0.057**
industry specialization
Control factors Yes Yes Yes Yes Yes Yes
Year, industry and country effect Yes Yes Yes Yes Yes Yes
COVID-19 effect Yes Yes Yes Yes Yes Yes
R-squared 0.390 0.398 0.395 0.395 0.404 0.400
Adjusted R-squared 0.379 0.389 0.386 0.384 0.394 0.391
Prob (F-statistic) 0.000 0.000 0.000 0.000 0.000 0.000
Durbin–Watson stat 1.714 1.694 1.703 1.822 1.795 1.775
Durbin–Wu–Hausman 4.01 3.69 3.38 5.14 4.86 5.22
F-statistics (p ¼ 0.72) (p ¼ 0.58) (p ¼ 0.46) (p ¼ 0.27) (p ¼ 0.35) (p ¼ 0.40) Table 8.
Notes: For each proxy, we used a separate model. For brevity, only coefficient estimates are provided. Curtailing effect of
***p < 0.01; **p < 0.05; *p < 0.1. I-represents the control variables included in the model audit quality on
Source: Authors’ own creation PSM samples
JFRA The findings show that both measures of audit quality have a significant and negative
direct impact on ARL (p < 0.05; refer to Table 9). These findings are in line with earlier
reported results in Table 5. However, interaction terms between Big-4 and audit firm
industry specialization are our variable of concern here. As per the results reported in
Table 9, the interaction terms have negative and statistically significant coefficient
estimates concerning ARL (p < 0.01; refer to Table 9). We find higher coefficient estimates
and levels of significance for interaction terms in all subsamples. This implies that both
measures of audit quality complement each other in their relationship with ARL. However,
we did not find any support for the substitution role as the coefficient estimates remained
negative and statistically significant. For further clarity, we also calculated differences in
coefficient estimates between the direct impact of audit quality constructs and their
interaction terms for subsamples. We find significant differences in coefficient estimates
between coefficient estimates of interaction terms and the direct effect of each proxy (p <
0.01; refer to Table 9). Based on the interplay role of both measures of audit quality, we can
argue that the presence of both proxies complements each other in their relationship with
ARL. Hence, the firm can adopt both measures to ensure timely audit reports.

7. Discussion and concluding remarks

The financial reporting timeliness is one of the most critical factors in measuring
transparency and the quality of financial reporting (Rusmin and Evans, 2017). In this
vein, firm complexity offers a unique case as complex firms may have vast operations
in local and global markets (Habib et al., 2019). We argue that complex firms will likely
have larger ARL based on complexity and audit report relation. Furthermore,
complexity has diverse aspects that may impact ARL differently. Using 6,084 firm-year
observations of nonfinancial from GCC economies, we empirically investigated the
impact of complexity on ARL. Furthermore, we used ARL, LnARL and AdjARL as
proxies of ARL. Our findings show that complexity increases ARL. Our results are
consistent with those (Habib et al., 2019). To test the subjectivity of the association
between firm complexity and ARL, we introduced integration terms between auditor
changes, auditor tenure, auditor-qualified opinion, adoption of IFRS and firm
complexity. We find that auditor change, tenure and auditor-qualified opinion augment

ARL LnARL AdjARL

Variables ß ß ß

BIG-4 ——(1)
0.167**
0.166**
0.144**

Audit firm industrial specialization——(2)
0.187**
0.182**
0.191**
Audit firm industrial specialization *Big-4– (3)
0.217***
0.199***
0.207***
D in coefficient estimates——(3–1) F ¼ 12.4*** F ¼ 15.7*** F ¼ 10.1***
D in coefficient estimates——(3–2) F ¼ 12.4*** F ¼ 12.4*** F ¼ 9.4***
CEO level control Yes Yes Yes Yes Yes
Governance control Yes Yes Yes Yes Yes
Audit committee characteristics Yes Yes Yes Yes Yes
Firm characteristics Yes Yes Yes Yes Yes
Year, industry, country and COVID effect Yes Yes Yes Yes Yes

Notes: For brevity, only coefficient estimates are provided. ***p < 0.01; **p < 0.05; *p < 0.1. Parentheses
Table 9. represent the robust standard errors. D represents a change in coefficient estimates. I-represents the control
Complementary or variables included in the model
substitution role Source: Authors’ own creation
the positive association between firm complexity and ARL. Therefore, one must Moderating
consider auditor change, tenure and auditor-qualified opinion while explaining the role of audit
association between complexity and ARL (Habib et al., 2019). In brief, the firm’s
complexity increases ARL in GCC economies.
quality
Next, we show that audit firms with industry specialization do audits faster than
nonindustrial specialists. Big-4 audit firms also audit faster than non-Big-4 firms. Instead
of the standard technique, we used interaction terms to examine their curtailment of the
positive connection between company complexity and ARL. We found that Big-4 reduces
the positive linkage between company complexity and ARL. Past studies show that Big-4
audit firms are more qualified, motivated and innately talented. Therefore, they execute
audits faster (Habib et al., 2019). Better audit methodology and internal control systems
improve employee performance, quality and audits. According to our findings,
complicated organizations may choose Big-4 auditors for speedy audits. Big-4 reduces
the positive connection between company complexity and ARL for all ARL proxies.
Audit report timeliness improves with audit firm industry specialization. Expert auditors
in the industry perform better audits and better client services. Our results stand up to
PSM. We control for many firm-specific characteristics. We found comparable outcomes
to previous research.
In addition, our study also has a theoretical contribution. Agency conflicts are more
pronounced in emerging markets. These are attributed to poor governance and managerial
entrenchments (Habib et al., 2019). Audit quality can be used as an effective mechanism to
reduce agency conflicts. Thus, better audit quality can reduce conflicts arising due to delays
in audit reports.

8. Policy implication
Given that firms’ complexity increases ARL in GCC economies, our findings support the
earlier argument that complex firms often have larger ARL. In GCC, firms have a
shorter period to complete their audit and the likelihood of larger ARL is more
pronounced in complex firms. After highlighting the role of firm complexity in ARL,
our study provided evidence regarding the curtailing effect of audit quality. Based on
our findings, policymakers and reformists are encouraged to opt for better audit quality
to curtail the likelihood of larger ARL. We strongly recommend particular treatment in
the regulatory framework for firms experiencing auditor change through the standard
procedures under regulatory compliance. Our audit quality proxies serve well when
firm complexity increases ARL. Similarly, the stakeholder can influence management
to hire industrial specialists or Big-4 audit firms to conduct an audit on a timely basis.
Hiring an external auditor with both qualities (audit firm industry specialization and
Big-4) curtails ARL as both attributes complement each other in their association with
ARL.

9. Limitations and future research

Our study has several limitations. First, its scope is limited to the GCC context. Exploring
our study in another regional or country-level context will be better. This may help the
researcher to generalize the findings. Second, a comparative analysis might be helpful to
compare our results with another region, which may help the researcher critically review the
determinants of ARL, which may further address our study’s limitations. Finally, we also
suggest a mega analysis of the determinants of ARL because it may help researchers resolve
the puzzle regarding the determinants of ARL.
JFRA Note
1. For clarification, we also used firm business operations and exports as other proxies for firm
complexity. In correlation analyses, we find high correlation between firm size, exports and
business segments (above 0.80). Larger firms have higher business operations and involvement
in exports. We also rerun our main regression for these two proxies. Our findings are similar to
firm size. Therefore, using other proxies as a measure of firm complexity do not serve well in
GCC context. For brevity, we did not provide the results here, however, the results can be
provided on request.

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Corresponding author
Faisal Khan can be contacted at: faisal_khan702@yahoo.com

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