Abnormal Audit Report Lags and Future Restatements: Moderating Role of Economic Bonding and auditor industry specialization

There is no consensus among accounting researchers regarding whether abnormal audit report lags affects future restatements. Some argue that extra audit efforts, emerging in terms of abnormal audit report lags, can significantly reduce the likelihood of financial restatements. On the other hand, others claim that abnormal audit report lags does not necessarily lead to high quality audit work, yet it may result from vague reporting issues and lack of explicit accounting standards, which in turn increase the possibility of ignoring material misstatements and probability of future financial restatements. Therefore, this study aims to investigate the impact of abnormal audit report lags on corporate future financial restatement. To do so, a sample of 82 firms listed in Tehran Stock Exchange during the years 2010-2014 were selected, and the research hypotheses were tested using logistic regression models. The results indicate that abnormal audit report lags enhances the likelihood of future financial restatements. Moreover, the findings reveal that auditor’s economic Bonding on clients intensifies the effect of abnormal audit report lags on financial restatements.