In an article in Accounting and BusinessResearch, Carslaw and Kaplan investigate factors that inﬂuence “audit delay” for ﬁrms in New Zealand. Audit delay, which is deﬁned to be the length of time (in days) from a company’s ﬁnancial year-end to the date of the auditor’s report, has been found to affect the market reaction to the report. This is because late reports often seem to be
associated with lower returns and early reports often seem to be associated with higher returns. Carslaw and Kaplan investigated audit delay for two kinds of public companies—owner-controlled and manager-controlled companies. Here, a company is considered to be owner controlled if 30 percent or more of the common stock is controlled by a single outside investor (an investor not part of the management group or board of directors). Otherwise, a company is
considered manager controlled. It was felt that the type of control inﬂuences audit delay. To quote Carslaw and Kaplan:
Large external investors, having an acute need for timely information, may be expected to pressure the company and auditor to start and to complete the audit as rapidly as practicable.
a) Suppose that a random sampleof 100 public owner-controlled companies in New Zealand is found to give a meanaudit delay of xbar = 82.6 days, and assume that s equals 33 days. Calculate a 95 percent conﬁdence interval for the population mean audit delay for all public owner-controlled companies in New Zealand.
b) Suppose that a random sample of 100 public manager-controlled companies in New Zealand is found to give a mean audit delay of xbar = 93 days, and assume that s equals 37 days. Calculate a 95 percent conﬁdence interval for the population mean audit delay for all public manager-controlled companies in New Zealand.
c) Use the conﬁdence intervals you computed in parts a and b to compare the mean audit delay for all public owner-controlled companies versus that of all public manager-controlledcompanies. How do the means compare? Explain.
See the attached file.
a) This is a sample and therefore, we use t distribution for the confidence interval.
Sample size 100
Critical value for 95% confidence interval 1.984216952
Sample standard deviation 33
Margin of error 6.54791594
The solution examines z-based confidence intervals for a population mean.