Financial Distress Management

Oct 13, 2025 by windailys.com 144 views

The Influence of Financial Distress, Auditor Switching, Reputation of Public Accounting Firm, Operating Profit, and the Complexity of the Company's Operations on Audit Delay: An Empirical Study of Property and Real Estate Companies Listed on the Indonesia Stock Exchange for the 2016-2020 Period

Introduction

Audit delay is a critical issue that affects various stakeholders, including investors and company management. It refers to the time needed to complete the company's financial statement audit process. The audit delay can have significant consequences, such as delayed financial reporting, increased costs, and decreased investor confidence. Therefore, it is essential to examine the factors that influence audit delay. This study aims to investigate the impact of financial distress, auditor switching, reputation of public accounting firm, operating profit, and the complexity of the company's operations on audit delay. The focus of this research is on property and real estate companies listed on the Indonesia Stock Exchange during the 2016 to 2020 period.

Background

Audit delay is a complex issue that involves various factors. Financial distress, which is a condition in which the company is in financial difficulties, can cause audit delay because the auditor may require more time to conduct in-depth analysis of complicated and unclear financial statements. Auditor switching or auditor changes can also have a significant impact. When a company moves auditors, new auditors may need more time to understand and review the company's financial situation they have just handled. On the other hand, the reputation of a good public accounting firm can speed up the audit delay. Auditors from offices who have a good reputation tend to be more efficient, helping to speed up the audit process.

Methodology

This study is included in the category of causal association research using quantitative data. The sampling method used is purposive sampling. Of the total population of 62 companies, this study managed to collect 38 company samples with a total of 190 observations for five years. The data obtained was taken from the Indonesia Stock Exchange website, www.idx.co.id. Data processing is carried out through descriptive statistical analysis and multiple linear regression.

Results

The results showed that financial distress and complexity of the company's operations partially had a positive and significant influence on the audit delay. Meanwhile, auditors switching and reputation of public accounting firms have a negative and significant influence on the audit delay. Interestingly, operating profit does not show a significant impact on the audit delay.

In-Depth Analysis

Audit delay is often the concern of many stakeholders, including investors and company management. Financial distress, which is a condition in which the company is in financial difficulties, can cause audit delay because the auditor may require more time to conduct in-depth analysis of complicated and unclear financial statements. In this condition, the auditor must also look at whether there are additional risks that arise, which in turn extend the audit time.

On the other hand, auditors switching or auditor changes can have a significant impact. When a company moves auditors, new auditors may need more time to understand and review the company's financial situation they have just handled. However, positively, the reputation of a good public accounting firm can speed up the audit delay. Auditors from offices who have a good reputation tend to be more efficient, helping to speed up the audit process.

The complexity of the company's operations also has a significant effect on audit delay. Companies with a more complex operating structure, for example those that have many business lines, tend to take longer in the audit process. This is because the auditor must investigate more in-depth to ensure the accuracy of financial statements.

In the context of operating profit, the findings that profit is not significantly indicates that financial performance does not always reflect the effectiveness of the audit process. This emphasizes the importance of deeper understanding of the factors that influence the audit delay, which can be a concern for the management of the company and investors to make strategic decisions.

Conclusion

Overall, this research provides an important insight into the dynamics that affect the audit delay in the property and real estate sector in Indonesia, as well as highlighting the need for companies to pay attention to these factors in financial management and relations with auditors. Thus, financial distress management, auditor selection, and operating complexity become an important element that must be managed wisely to ensure the smooth audit process.

Recommendations

Based on the findings of this study, the following recommendations are made:

Financial Distress Management: Companies should manage their financial distress effectively to avoid audit delay. This can be achieved by maintaining a healthy financial position, managing debt, and ensuring timely payment of taxes and other obligations.
Auditor Selection: Companies should select auditors who have a good reputation and are efficient in their work. This can help to speed up the audit process and reduce audit delay.
Operating Complexity: Companies with complex operating structures should simplify their operations to reduce audit delay. This can be achieved by streamlining business processes, reducing the number of business lines, and ensuring that financial statements are accurate and transparent.
Investor Education: Investors should be educated on the factors that influence audit delay and the importance of financial management in reducing audit delay.

Limitations

This study has several limitations that should be noted. Firstly, the study only focuses on property and real estate companies listed on the Indonesia Stock Exchange, which may not be representative of all companies in the sector. Secondly, the study only examines the impact of financial distress, auditor switching, reputation of public accounting firm, operating profit, and complexity of the company's operations on audit delay, which may not be the only factors that influence audit delay. Finally, the study only uses quantitative data, which may not provide a complete picture of the dynamics that affect audit delay.

Future Research Directions

Future research should aim to examine the impact of other factors that may influence audit delay, such as corporate governance, board composition, and executive compensation. Additionally, future research should aim to examine the impact of audit delay on financial performance and investor confidence. Finally, future research should aim to develop a more comprehensive model of audit delay that takes into account the complex dynamics that affect it.

Conclusion

In conclusion, this study provides an important insight into the dynamics that affect audit delay in the property and real estate sector in Indonesia. The findings of this study highlight the importance of financial distress management, auditor selection, and operating complexity in reducing audit delay. The study also emphasizes the need for companies to pay attention to these factors in financial management and relations with auditors. Finally, the study provides recommendations for companies, investors, and regulators to manage audit delay effectively.
Frequently Asked Questions (FAQs) on Audit Delay

Q: What is audit delay?

A: Audit delay refers to the time needed to complete the company's financial statement audit process. It is a critical issue that affects various stakeholders, including investors and company management.

Q: What are the factors that influence audit delay?

A: The factors that influence audit delay include financial distress, auditor switching, reputation of public accounting firm, operating profit, and complexity of the company's operations.

Q: How does financial distress affect audit delay?

A: Financial distress can cause audit delay because the auditor may require more time to conduct in-depth analysis of complicated and unclear financial statements. In this condition, the auditor must also look at whether there are additional risks that arise, which in turn extend the audit time.

Q: What is the impact of auditor switching on audit delay?

A: Auditor switching or auditor changes can have a significant impact on audit delay. When a company moves auditors, new auditors may need more time to understand and review the company's financial situation they have just handled.

Q: How does the reputation of a public accounting firm affect audit delay?

A: The reputation of a good public accounting firm can speed up the audit delay. Auditors from offices who have a good reputation tend to be more efficient, helping to speed up the audit process.

Q: What is the impact of operating profit on audit delay?

A: The findings of this study indicate that operating profit does not show a significant impact on audit delay. This suggests that financial performance does not always reflect the effectiveness of the audit process.

Q: How does the complexity of a company's operations affect audit delay?

A: Companies with a more complex operating structure, for example those that have many business lines, tend to take longer in the audit process. This is because the auditor must investigate more in-depth to ensure the accuracy of financial statements.

Q: What are the implications of audit delay for investors and company management?

A: Audit delay can have significant implications for investors and company management, including delayed financial reporting, increased costs, and decreased investor confidence.

Q: What are the recommendations for companies to manage audit delay effectively?

A: The recommendations for companies to manage audit delay effectively include:

Financial Distress Management: Companies should manage their financial distress effectively to avoid audit delay.
Auditor Selection: Companies should select auditors who have a good reputation and are efficient in their work.
Operating Complexity: Companies with complex operating structures should simplify their operations to reduce audit delay.
Investor Education: Investors should be educated on the factors that influence audit delay and the importance of financial management in reducing audit delay.

Q: What are the limitations of this study?

A: This study has several limitations that should be noted, including:

Sample Size: The study only focuses on property and real estate companies listed on the Indonesia Stock Exchange, which may not be representative of all companies in the sector.
Data Collection: The study only uses quantitative data, which may not provide a complete picture of the dynamics that affect audit delay.
Model Specification: The study only examines the impact of financial distress, auditor switching, reputation of public accounting firm, operating profit, and complexity of the company's operations on audit delay, which may not be the only factors that influence audit delay.

Q: What are the future research directions?

A: Future research should aim to examine the impact of other factors that may influence audit delay, such as corporate governance, board composition, and executive compensation. Additionally, future research should aim to examine the impact of audit delay on financial performance and investor confidence. Finally, future research should aim to develop a more comprehensive model of audit delay that takes into account the complex dynamics that affect it.