The extent of audit report lag and governance mechanisms

Abstract

Purpose The purpose of this study is to examine the extent of audit report lag and its association with governance mechanisms in the Islamic banking institutions in Malaysia. Design/methodology/approach The extent of audit report lag is defined by the number of days from a company’s financial year-end to the signature date on its audit report. The sample of the study comprises 112 observations of Islamic banking institutions’ financial reports for the period 2008-2014. A balanced panel data analysis is performed to analyse the association between the extent of audit report lag and governance mechanisms. Findings The findings show that the extent of audit report lag for the sample selected ranges from a minimum period of 7 days to a maximum period of 161 days, and the extent of audit report lag is approximately two months on average. A fixed effects analysis indicates that audit committee expertise and audit committee meeting have significant association with the extent of audit report lag. On the other hand, board independence, audit committee size and Shari’ah board expertise have insignificant association with the extent of audit report lag. In addition, one control variable (Islamic bank size) is found to be significantly associated with longer audit report lag. Practical implications The findings provide useful feedback for Malaysian policymakers on the past and current practices of financial reports and of governance mechanisms. The findings of the study would help the policymakers in monitoring the Islamic banking institutions’ compliance with financial reports submission requirements. The policymakers perhaps could relook into governance mechanisms that reduce the extent of audit report lag in the Islamic banking institutions and implement regulations to strengthen them. Originality/value Unlike the majority of prior studies that investigated the association between the extent of audit report lag and governance mechanisms, this study provides two contributions. First, to the authors’ knowledge, this study is the first piece of research that examined the association between governance mechanisms and the extent of audit report lag in Islamic banking institutions. Second, the study examined the association of new governance variable, namely, Shari’ah committee expertise which has not been previously examined in the literature of audit report lag.

Sharia corporate governance and financial reporting timeliness: Evidence of the implementation of banking regulations in Indonesia

“…In ICb, it was found that the SSB coefficient statistic was -3.82, significant at the 10 percent level. The study of SSB related to timeliness was carried out by Kaaroud et al (2020). The results of this study do not support their investigation, which concluded that SSB had a weak association with timeliness.…”

“…All interested parties, either directly or indirectly, hope to get benefits from bank activities in accordance with Sharia principles. To meet the expectations of these stakeholders, an agency that supervises the operation of the business is needed according to the right mechanism to solve Sharia problems (Kaaroud et al, 2020).…”

Audit Committee Chair Attributes and Audit Report Lag in an Emerging Market

“…The importance of ARL has encouraged previous researchers to analyse several factors that may affect its extent (Kaaroud, Mohd Ariffin, & Ahmad, 2020). Durand (2019) has reported that out of 126 independent variables used in previous studies as the determinants of ARL, they can be divided into three categories, namely: firm attributes, audit attributes, and corporate governance attributes.…”

“…Given the possible effects of ARL in the timeliness of issuing annual reports (Wan-Hussin & Bamahros, 2013), a sizeable number of studies have reported on examining the factors leading to audit report delay (Bhuiyan & D'Costa, 2020;Juwita, T, & Hariadi, 2020;Kaaroud et al, 2020). However, limited studies have been done on the importance of ACC attributes, such as accounting expertise and ACC tenure (i.e., Baatwah et al, 2019;Ghafran & Yasmin, 2018;Tanyi & Smith, 2015).…”

“…- (Afify, 2009;Ashton et al, 1989;Kaaroud et al, 2020;Wan-Hussin et al, 2018). Expertise of AC chair ACCEXP Dummy variable, "1" if the ACC is qualified as an accounting and auditing expertise, and "0" if otherwise.…”