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JAAR
10,1 Determinants of audit report lag
Does implementing corporate governance have
any impact? Empirical evidence from Egypt
56 H.A.E. Afify
Department of Business, Arab Open University, Kuwait City, Kuwait and
Department of Accounting, Faculty of Commerce, Zagzig University,
Zagzig, Egypt

Abstract
Purpose – There are three main purposes of this study which are: first, to review the literature on
audit report lag (ARL) and its determinants; second, to measure the extent of ARL in a developing
country, Egypt; and third, to empirically examine the impact of corporate governance (CG)
characteristics on ARL in Egypt.
Design/methodology/approach – The literature on determinants of ARL motivated the author to
investigate about the impact of CG characteristics and audit-related characteristics on ARL especially
in emerging capital markets, such as the Cairo and Alexandria Stock Exchange (CASE) for a sample
(85 companies) of Egyptian listed companies. Further, the study includes explanatory variables
relating to CG characteristics, which have not previously been considered (i.e. board independence,
duality of chief executive officer (CEO), and existence of an audit committee), that may shed more light
on the structure and dynamics of the ARL.
Findings – The ARL for each of the 85 listed sample companies ranged from a minimum interval of
19 days to a maximum interval of 115, and Egyptian listed companies take approximately two months
on average. A regression analysis indicates that board independence, duality of CEO, and existence of
an audit committee significantly affect ARL. But on the other hand, ownership concentration has
insignificant affect on ARL. Also, three control variables (company size, industry and profitability)
significantly affected ARL. The adjusted R 2 indicate that 57.10 per cent of the variation in the
dependent variable in the regression model is explained by variations in the independent variables.
Originality/value – This study of Egyptian companies listed on the CASE represents the initial
comprehensive examination of ARL, and it is consider the first study to provide a thorough
examination of the association between CG characteristics and ARL.
Keywords Audit reports, Corporate governance, Egypt
Paper type Research paper

Journal of Applied Accounting
Research
Vol. 10 No. 1, 2009
pp. 56-86
q Emerald Group Publishing Limited
0967-5426
DOI 10.1108/09675420910963397
1. Introduction
Timeliness of the financial statements consider one of the important aspects that the
users of accounting information concern. Accounting researchers, regulatory bodies
and professional agencies reflect the qualitative characteristic of financial accounting
information (Knechel and Payne, 2001; Soltani, 2002). Prior studies have provided
empirical evidence that audit timeliness is the most influential factor in the timeliness
of financial statements (Owusu-Ansah, 2000; Leventis et al., 2005). Timely corporate
financial reporting is an essential ingredient for a well-functioning capital market.
The author gratefully acknowledges helpful comments by Dr Kumba Jallow at Leicester
Business School. The author acknowledges the assistance of financial departments in Egyptian
companies in responding to his enquires and providing confidential data for this study.
Undue delay in releasing financial statements increases uncertainty associated with Determinants
investment decisions (Ashton et al., 1987). Now than ever before timeliness of of audit report
accounting information has become an important issue as a result of phenomenal
changes in both modern technology and business practices worldwide, including lag
practices of corporate governance (CG). The importance of timely accounting
information for operational reasons in general, and capital markets in particular,
cannot be over-emphasized. Consequently, most professional and regulatory bodies of 57
capital markets have taken actions to reduce the release of financial statements delays
(SEC (USA), 2002a). Timely reporting in emerging markets, as Egypt, is very crucial,
since information in these markets is relatively limited and has a longer time lag.
Timely reporting will enhance decision making and reduce information asymmetry in
these markets. Hence, exploring the determinants of timely reporting would enhance
the regulators of emerging capital markets in formulating new policies to improve the
allocation efficiency of their markets (Owusu-Ansah and Leventis, 2006).
One of the most important factors that affect the timeliness of information releases
is the timeliness of the annual audit. Bamber et al. (1993) report that over 70 per cent of
all companies wait until at least the annual audit report date before announcing
earnings. This demonstrates the importance of a timely audit, earnings information,
and the role of the annual audit in determining the timing of information releases. The
importance of audit lag (AL) research is well recognized. AL affects the timeliness of
accounting information, which is a key to promoting investors’ confidence in capital
markets (Ettredge et al., 2005). Regulators need to understand the determinants of AL
before they can effectively implement rules to reduce it (Leventis et al., 2005).
The present study further enhances our understanding on the determinants of audit
report lag (ARL), which is imperative for three reasons. First, ARL, described in some
research as “audit delay”[1] (Johnson, 1998), which play an important role on the
timeliness of conveying audit information to markets (Dopuch et al., 1986; Lai and
Cheuk, 2005). The timeliness of the audit opinion disclosure is important in providing
recent evidence about the ability of that qualified opinions to convey information to the
capital market. ARL can also affect the timing of the company’s public earnings
announcement (Givoly and Palmon, 1982; Ashton et al., 1987) since evidence reported
in these studies suggests that the majority of client firms (over 70 per cent) wait at least
until the audit report date to announce earnings. Hakansson (1977) explains that
timeliness of public disclosures (e.g. audit opinions and earnings information) is
important because delays compromise the ideal of equal access to information among
investors. Delayed disclosure allows a subset of investors (primarily those with
unusual detective abilities or wealth) to acquire costly private pre-disclosure
information. These “well-informed” investors can then exploit (trade on) their private
information at the expense of “less-informed” investors. This is why policy makers
such as the Financial Accounting Standard Board (FASB, 1980) have voiced concern
about the timeliness of public information disclosures[2]. Second, the timeliness of
earnings information is also affected by ARL. Indeed, ARL have been suggested to be
the single most important determinant of the timeliness of earnings announcements
(Givoly and Palmon, 1982) which in turn, has been found to be associated with market
reactions (Chambers and Penman, 1984). Third, it may provide insights for audit
efficiency as proxied by the observable ARL. A better understanding of its
determinants may provide insights into audit efficiency. Efficiency means the use of
Undue delay in releasing financial statements increases uncertainty associated with Determinants
investment decisions (Ashton et al., 1987). Now than ever before timeliness of of audit report
accounting information has become an important issue as a result of phenomenal
changes in both modern technology and business practices worldwide, including lag
practices of corporate governance (CG). The importance of timely accounting
information for operational reasons in general, and capital markets in particular,
cannot be over-emphasized. Consequently, most professional and regulatory bodies of 57
capital markets have taken actions to reduce the release of financial statements delays
(SEC (USA), 2002a). Timely reporting in emerging markets, as Egypt, is very crucial,
since information in these markets is relatively limited and has a longer time lag.
Timely reporting will enhance decision making and reduce information asymmetry in
these markets. Hence, exploring the determinants of timely reporting would enhance
the regulators of emerging capital markets in formulating new policies to improve the
allocation efficiency of their markets (Owusu-Ansah and Leventis, 2006).
One of the most important factors that affect the timeliness of information releases
is the timeliness of the annual audit. Bamber et al. (1993) report that over 70 per cent of
all companies wait until at least the annual audit report date before announcing
earnings. This demonstrates the importance of a timely audit, earnings information,
and the role of the annual audit in determining the timing of information releases. The
importance of audit lag (AL) research is well recognized. AL affects the timeliness of
accounting information, which is a key to promoting investors’ confidence in capital
markets (Ettredge et al., 2005). Regulators need to understand the determinants of AL
before they can effectively implement rules to reduce it (Leventis et al., 2005).
The present study further enhances our understanding on the determinants of audit
report lag (ARL), which is imperative for three reasons. First, ARL, described in some
research as “audit delay”[1] (Johnson, 1998), which play an important role on the
timeliness of conveying audit information to markets (Dopuch et al., 1986; Lai and
Cheuk, 2005). The timeliness of the audit opinion disclosure is important in providing
recent evidence about the ability of that qualified opinions to convey information to the
capital market. ARL can also affect the timing of the company’s public earnings
announcement (Givoly and Palmon, 1982; Ashton et al., 1987) since evidence reported
in these studies suggests that the majority of client firms (over 70 per cent) wait at least
until the audit report date to announce earnings. Hakansson (1977) explains that
timeliness of public disclosures (e.g. audit opinions and earnings information) is
important because delays compromise the ideal of equal access to information among
investors. Delayed disclosure allows a subset of investors (primarily those with
unusual detective abilities or wealth) to acquire costly private pre-disclosure
information. These “well-informed” investors can then exploit (trade on) their private
information at the expense of “less-informed” investors. This is why policy makers
such as the Financial Accounting Standard Board (FASB, 1980) have voiced concern
about the timeliness of public information disclosures[2]. Second, the timeliness of
earnings information is also affected by ARL. Indeed, ARL have been suggested to be
the single most important determinant of the timeliness of earnings announcements
(Givoly and Palmon, 1982) which in turn, has been found to be associated with market
reactions (Chambers and Penman, 1984). Third, it may provide insights for audit
efficiency as proxied by the observable ARL. A better understanding of its
determinants may provide insights into audit efficiency. Efficiency means the use of
JAAR fewer inputs to obtain a given output, and ARL (i.e. the time required to complete the
10,1 audit) is one proxy for audit inputs. Given the preference for timely disclosure
discussed above, more efficient auditors should perform more timely audits. If factors
beyond the auditor’s control are statistically controlled, ARL may provide evidence on
the input side of audit efficiency. Thus, empirical evidence on ARL is very important
because this lag is one of the few externally observable variables that is likely to be
58 associated with audit efficiency (See Newton and Ashton, 1989 for a similar argument).
The current paper examines determinants of ARL for companies listed on the Cairo
and Alexandria Stock Exchange (CASE). In general, in developing markets there may
be limited availability of financial information beyond the financial statements. Users
therefore rely significantly on the publication of the annual results of a company. It may
also be important for users and regulators to understand the determinants of ARL
(Leventis et al., 2005). Incorporating CG characteristics into the analysis (e.g. board
independence, duality of chief executive officer (CEO), and existence of an audit
committee, etc.) might shed more light on the structure and dynamics of ARL. The
purpose of the present study is to provide further evidence on the determinants of AL
and to extend prior research in three ways. First, the multivariate relationship between
AL and a set of explanatory variables for the Egyptian market is considered. Second,
the explanatory variables comprise both company and auditor attributes, and include
explanatory variables relating to CG, which have not been considered in prior research
in Egypt. Third, the study includes a recent time period, 2007, and covers a period in
which the economic conditions in Egypt were very different, as will be discussed later.
Accordingly, this study investigates the following research question:
RQ. What is the impact of implementing CG mechanisms on ARL in Egyptian
listed companies?
The remainder of the paper is organized as follows. Section 2 discusses the background
to the development in the capital market in Egypt. Section 3 discusses the results of
prior literature. This is followed in the fourth section by a development of research
hypotheses, Section 5 by a description of research design, Section 6 reports and
discusses the findings of the study and some conclusions are drawn. The implications
of the study are discussed and opportunities for further research are noted.

2. Background
While it was founded in 1979 by Presidential Decree No. 520, the Capital Market
Authority (CMA) did not take on its full importance until the 1990s. During that period,
its main role was to facilitate the reemergence of Egypt’s capital market by providing
leadership to market institutions, educating potential investors, and strengthening the
legal, regulatory, and operational infrastructure. At the same time, Egypt’s economic
restructuring programme, in particular privatization of state-owned companies,
accelerated the growth of the market. As a result of these efforts, market capitalization
grew exponentially, from LE 5 billion in 1990 to LE 815 billion in 30 June 2008 (CMA,
2008). The Egyptian market is characterized by a large number of listed companies.
Many companies have traditionally been listed because of the tax advantages
associated with listing. Listed companies are eligible for a tax exemption equivalent to
the three months’ deposit rate paid by the Central Bank on paid-up capital.
A total of 1,148 companies were listed at the end of 2002, decreased to 372
companies in 2007 (CMA, 2008). Obviously aligning Egyptian accounting standards Determinants
with international standards (International Financial Reporting Standards (IFRS)) and of audit report
making them binding for all companies will raise financial statements’ level of
disclosure and transparency. Financial statements will be prepared in a way that better lag
reflects the actual financial position of the company and hence will represent an
effective analytical tool for both market analysts and investors. In this respect, the
Minister of Investment has issued the Ministerial Decree No. 243 of 2006 incorporating 59
the new Egyptian Accounting Standards replacing the ones issued by Ministerial
Decrees Nos 503/1997 and 345/2002. The 35 Egyptian accounting standards were
prepared according to international accounting standards. The CMA is working to
improve compliance with accounting standards. The CMA reports a number of actions
taken to improve compliance with financial reporting rules. The new accounting
standards have been issued to be in line with market developments. The new standards
were effective from 1 January 2007. Issuing such standards is considered a significant
step towards the application of CG principles. Also, the Minister of Investment has
issued the Ministerial Decree No. 166 of 2008 incorporating the new Egyptian audit
and limited inspection standards replacing the ones issued in September 2000.
The Egyptian audit and limited inspection standards includes ten sets of criteria which
cover 38 standards including all tasks performed by auditors and legal accountants.
Also, these standards include the auditing standard No. 260 about “The communication
with responsibles on governance related to auditing subjects” (CMA, 2008). The new
audit standards are consistent with the international audit standards and come
within the set of procedures taken to enforce Egyptian joint stock companies to prepare
their financial statements according to the IFRS. The Egyptian accounting standards
have been effective since January 2007 while the Egyptian audit and limited inspection
standards complement the transparency and disclosure requirements according to the
international standards of auditing financial statements and preparing their respective
auditor’s reports.
Many countries in the Middle East and North Africa region have come to realize the
importance of good CG. Countries such as Egypt are actively working to develop the
tools and institutions necessary to implement sound governance principles on a
national scale. It is interesting to note, however, that one of the key obstacles to the
successful implementation of governance standards is the private sector’s lack of
awareness about the subject and the benefits it provides.
The Egyptian institute of directors has officially launched the code of CG,
guidelines, and standards for Egyptian companies. A CG committee of Egyptian
market participants and legal experts worked with support from Center for
International Private Enterprise (CIPE) for more than a year to draft a code of CG
written in Arabic. It incorporates international best practices and the local realities of
doing business in Egypt. The code is applicable to listed firms, family-owned firms,
financial institutions, state-owned companies, and shareholding companies. While the
code itself is voluntary, the capital market and company laws on which it is based are
obligatory and enforced by the State (CIPE).
The draft of the code was established in January 2005. A task force representing
Egyptian business associations, financial institutions, auditors, accountants, and legal
advisors ensured compliance with Egyptian laws and regulations. This CG code will
improve the ability of the Egyptian business private sector to attract much needed
JAAR investment, both foreign and domestic. This is a laudable initiative by the business
10,1 community in Egypt and its success will boost similar efforts in other countries in the
Middle East (CIPE, 2005).
The Egyptian Code of Corporate Governance (ECCG) was formally established in
October 2005 and was largely derived from the recommendations of the Cadbury
Report (1992), the Hampel Report (1998) and the Combined Code (2000) in the UK (see
60 CIPE).
CG, according to the Egyptian’ code, means: “the rules, systems and procedures that
guarantee the best protection and balance between the interests of the company’s
managers, shareholders and other stakeholders” (ECCG, 2005, p. 3). CG rules are
primarily applied on listed joint stock companies and other financial institutions taking
the form of joint stock companies. CG principles can be divided into six groups:
effective CG framework, the rights of shareholders, the equitable treatment of
shareholders, the role of stakeholders in CG, disclosure and transparency, and the
responsibilities of the board (ECCG, 2005).
The “principles” address four main issues: board of directors (BOD), directors’
remuneration, shareholders, and accountability and audit. The objective of these
principles is to allow companies to apply them flexibly and with “common sense”
based on the varying circumstances of individual companies.
Compliance is voluntary but companies are required to state in their annual reports
the extent to which they have complied and to explain any circumstances justifying
departure from such best practices.
The CMA included in its strategic plan, for capital market development, a number
of executive rules to apply governance principles derived from the manual of CG rules
and principles issued by the Ministry of Investment in October 2005. By issuing these
executive rules, the CMA endeavours to achieve a major shift in the field of disclosure
and transparency through turning governance principles from mere standards and
guiding manuals into mandatory rules. For that purpose, the CMA BOD formed an
internal committee from its members in addition to a number of consultants and
experts to prepare mandatory executive rules of CG principles. The committee started
to work on 13 July 2006 and finished its detailed report for the CMA BOD on draft
executive rules of CG of listed companies. The report also included a number of
manuals proposed to be issued by the CMA in order to assist companies committed to
comply with governance rules (CMA).
Abdelsalam and Street (2007) stated that timeliness is a necessary component of
relevant financial information that is receiving increased attention by accounting
regulators and listing authorities worldwide. For example, in the USA the Securities
and Exchange Commission (SEC), New York Stock Exchange (NYSE), and NASDAQ
have issued requirements and recommendations regarding the timely dissemination of
financial information. The issue of timely reporting has received attention in US
markets with the announcement of phased reductions in reporting time limits from 90
days after the financial year end to 60 days by 2005 (SEC (USA), 2002b).
Highlighting the importance of timely dissemination of information, the European
Union (EU, 2004, Para. 1) states:
[. . .] The disclosure of accurate, comprehensive and timely information about security issuers
builds sustained investor confidence and allows an informed assessment of their business
performance and assets. This enhances both investor protection and market efficiency.
The EU Market Transparency Directive further stresses timely dissemination of Determinants
information and indicates issuers should produce: of audit report
.
an annual financial report within three months of the end of the financial year; lag
.
a detailed semi-annual financial report; and
.
quarterly financial information for the first and third quarters of a financial year.

Currently, the general requirement of the Financial Services Authority is that

61
London-listed companies disclose information “without delay” and avoid selective
disclosure (Al-Hawamdeh and Snaith, 2005).
In Egypt, listed companies are required by law to present their annual financial
statements within three months of the fiscal year-end. In addition, listed companies
must present their financial statements 45 days after the end of each quarter. However,
many companies fail to meet these requirements (CMA, 2008).

3. Prior literature
The predominant focus of prior literature has been on the developed markets in
North America (e.g. USA by Givoly and Palmon, 1982; Chambers and Penman, 1984;
Ashton et al., 1987; Atiase et al., 1988; Bamber et al., 1993; Henderson and Kaplan, 2000;
Ettredge et al., 2005; Behn et al., 2006, and in Canada by Ashton et al., 1989; Newton and
Ashton, 1989; Kinney and McDaniel, 1993; Schwartz and Soo, 1996; Knechel and
Payne, 2001; Lee et al., 2008); in Europe (e.g. France by Soltani, 2002; Owusu-Ansah
and Leventis, 2006); and in Oceania (Davies and Whittred, 1980; Carslaw and Kaplan,
1991; Lai and Cheuk, 2005). Some emerging markets have, however, been studied,
including China by Haw et al. (2003), in Hong Kong by both Ng and Tai (1994) and
Jaggi and Tsui (1999), in Zimbabwe by Owusu-Ansah (2000), in Bangladesh by both
Imam et al. (2001) and Karim et al. (2006), in Malaysia by Ahmad and Kamarudin
(2003), in Pakistan by Hossain and Taylor (1998), in Greece by Leventis and Weetman
(2004), Leventis et al. (2005) and Owusu-Ansah and Leventis (2006), and in Egypt by
Mohamad (1995) and El-Banany (2006). The author summarizes the abundant
literature in Table I.
Table I indicates that there are many variables that can be used to observe
associations with ARL and to explain the variation in time lags of audit reports by
listed companies.
In general, these studies use public domain data about companies; although some
studies have access to audit firms’ data. Client characteristics are the largest among
independent variables, however the effect of CG characteristics, as independent
variables, on ARL was not examined. Therefore, this literature motivated the author to
establish the current study, especially after issuing the CG’ code in Egypt.

4. Hypotheses development
A priori, it appears that several variables are relevant to ARL, and the prior research
provides some support in this regard. The author collected data on eight variables that
describe the client, the auditor, and/or some form of “interaction” between client and
auditor. In other words, four variables that describe CG characteristics, and four that
describe control variables. These variables are defined in Table II.
 62
10,1

Table I.
JAAR

lag/delay studies
Summary of audit report
Dependent Research
Source Object of study Country Period of study Sample variable Main independent variables design Significant variables

Davies and Determinants of Australia 1972-1977 100 listed The total The company size, year end, and T-test The size
Whittred ARL companies reporting lag profitability
(1980)
Givoly and Determents of USA 1960-1974 210 companies in The reporting Type of industry, and report Linear The industry, content of the
Palmon (1982)the timeliness 25 industries lag content regression report
of annual model Continuous reduction in the
earnings time lag
announcements
Chambers and Determents of USA 1975-1976 Interim and Earning Stock price behaviour, firm size, T-test The firm size (inverse
Penman the timeliness annual earnings reporting lag reports content relationship). When reports
(1984) of annual announcements are published earlier than
earnings of 100 firms listed expected, they tend to have
announcements (2,456 earnings larger price effects
announcements)
Ashton et al. Determinants of USA 1982 488 companies Audit delay 14 variables (e.g. total revenues, Univariate Seven of the 14 variables are
(1987) audit report four measures of firm complexity, (linear significantly associated with
delay industry, profitability, quality of regression), audit delay, such as better
internal control, and audit opinion) ordinary least internal control quality
square (OLS) measures, the proportion of
regression interim audit work, and firms
with calendar year closings
Atiase et al. Determents of USA 1975-1984 8,320 annual The reporting The firm size, type of news Multivariate The firm size, type of news
(1988) the timeliness earnings lag regression
of annual announcements
earnings
announcements
Ashton et al. Determinants of Canada 1977-1982 465 listed Audit delay Eight explanatory variables (e.g. Regressions Auditor size, industry,
(1989) audit report companies company size, industry, models extraordinary items, and net
delay profitability, extraordinary items income
and auditor)
Newton and Determinants of Canada 1978-1982 465 listed Audit delay Six variables from Ashton et al. Linear Firms using structured audit
Ashton (1989) audit report companies (1989) (total assets, industry, year regression approaches tend to have
delay (subset of those end, extraordinary items, model greater mean delay than firms
studied by contingencies, and audit opinion), using unstructured or
Ashton et al., and two variables are added: intermediate approaches in
1989) change in earnings, and structure each of the five years
of the company’s auditor
(continued)
 Dependent Research
Source Object of study Country Period of study Sample variable Main independent variables design Significant variables

Carslaw and Determinants of New 1987, 1988 263 and 239 Audit delay Company size, industry, income, Univariate and Both company size and sign of
Kaplan (1991) audit report Zealand companies for extraordinary items, audit opinion, multivariate income significantly affect
delay 1987 and 1988, company year-end, company (linear audit delay across the two
respectively ownership, and debt proportion regression) years examined
Bamber et al. Determinants of USA 1983-1985 972 observations ARL Ten variables (e.g. auditor business Linear Greater structure generally led
(1993) ARL (551 structured risk, audit complexity, structure of regression to longer ARLs, but that
audit firms, 421 audit, industry, earning, model accounting firms with greater
unstructured extraordinary items, size, and audit structure also reacted more
audit firms) opinion) quickly to unanticipated
events
Kinney and Determinants of USA 1986-1988 from 85 firms Audit delay Interim earnings, annual earnings, Multivariate The intercept for audit delay is
McDaniel audit report NAARS file extraordinary items, modifications, regression significantly positive for firms
(1993) delay and return with interim and declining
earnings, and that audit delay
increases with the size of the
overstatement of interim
earnings
Mohamad Determinants of Egypt 1990 31 Audit delay Size, industry, performance, listing, Linear listing, extraordinary items,
(1995) audit report complexity of activity, regression and auditor opinion
delay extraordinary items, audit type, model
start of auditing, and auditor
opinion
Schwartz and Determinants of USA 1988-1993 Sample of auditor The ARL and 15 variables (e.g. change auditors, Univariate and Supporting the hypotheses
Soo (1996) ARL and the changes from the earnings structure of audit, extraordinary multivariate that “audit report and earnings
earnings Form 8-K filings announcement items, industry, audit opinion, and (linear announcement lags are
announcement reported in lag type of audit firm, etc.) regression) associated with the timing of
lag LEXIS/NEXIS auditor changes in relation to
(502 auditor firms’ fiscal year-ends”
changes
representing
1,800 firm)
Hossain and Determinants of Pakistan 1993 103 listed Audit delay Size, debt-equity ratio, Multiple linear The subsidiaries of
Taylor (1998) audit report companies profitability, subsidiaries of regression multinational companies
delay multinational companies, and audit
firm size
Jaggi and Determinants of Hong Kong 1991-1993 393 companies ARL Financial condition, family Multiple The company’s family
Tsui (1999) ARL ownership and control, audit firm regression ownership and control, and the
technology model size of firm audit
(continued)
Determinants

lag
of audit report

63

Table I.
 64
10,1

Table I.
JAAR

Dependent Research
Source Object of study Country Period of study Sample variable Main independent variables design Significant variables

Henderson Determinants of USA 1988-1993 93 commercial ARL 14 variables (similar to Bamber Cross-sectional Loss, uncertain, and size
and Kaplan ARL banks over the et al., 1993) (pooled)
(2000) six years analysis and
1988-1993, or 588 panel data
observations analysis.
regressions
models
Imam et al. Determinants of Bangladesh 1997, 1998 117 companies Audit delay Audit firms’ international Chi-square tests Reject the hypothesis: “Audit
(2001) audit report and audit firms firms’ association with
delay international firms produces
shorter audit delay (AD)”
Knechel and Determinants of Canada 1991 Proprietary ARL Incremental audit effort (e.g. Linear Incremental audit effort, the
Payne (2001) ARL database hours), the resource allocation of regression presence of contentious tax
containing 226 audit team effort measured by rank model issues, and the use of less
audit (partner, manager, or staff), and the experienced audit staff
engagements provision of non-audit services
from an (MAS and tax)
international
public accounting
firm
Soltani (2002)
Examining the France 1986-1995 5,801 annual Reporting Consolidated accounts/annual Chi-square and Type of accounts, and audit
trend in reports of French delay accounts of companies, and audit Fisher; and opinions
reporting delay publicly held opinions T-test
of companies companies
Ahmed (2003) Determinants of Bangladesh, 1998 558 annual Reporting lag Company size, sign of earnings, Multivariate The size of the audit firm in
reporting lag India and reports. company financial condition, size regression India and Pakistan,
Pakistan Bangladesh (115), of audit firm, and company model Profitability and corporate size
India (226) and year-end are significant determinants
Pakistan (217) only in Pakistan
Haw et al. Determinants of China 1995-1999 2,921 annual ARL Audit opinions and earnings Regression Audit opinions and earnings
(2003) ARL earnings surprises model surprises
announcements
Leventis and Determents of Greece 1997 227 listed The lead-time Information cost savings, Linear Information cost savings,
Weetman the lead-time to companies to disclosure proprietary costs, news content, regression proprietary costs, and news
(2004) disclosure of of the and company size model content
the financial financial
statements statements
(continued)
 Dependent Research
Source Object of study Country Period of study Sample variable Main independent variables design Significant variables

Ettredge et al. Determinants of USA 2003, 2004 2,465 Audit delay Companies’ internal control quality Multiple linear First, to fulfill the
(2005) audit report firm-observations (accordingly Sarbanes-Oxley Act regression requirements of SOX 404
delay for fiscal year (SOX) Section 404), size, industry, reporting, companies
2003, and 2,350 ownership concentration, financial experience significantly longer
firm-observations condition, client extraordinary audit delay in 2004 compared
for fiscal year items, business complexity, net to 2003. Second, companies
2004 losses, restatement, audit fee and with material weakness in
auditor’s opinion on the financial ICOFR experience longer audit
statements delays than companies with
effective ICOFR. Third,
general material weaknesses
cause longer delays than
specific material weakness
Lai and Cheuk Determinants of Australia 2001 369 companies ARL 17 variables (e.g. audit firm Regressions A positive and significant
(2005) ARL rotation, size of client, number of models association between cross-up
subsidiaries, industry, audit firm rotation and ARL
extraordinary items, audit opinion,
going-concern audit opinion, and
probability of bankruptcy)
Leventis et al. Determinants of Greece 2000 171 companies ARL Type of external auditor, number Linear Type of auditor, audit fees,
(2005) ARL selected from the of remarks in the audit report, regression number of remarks in the audit
342 companies audit fees, and extraordinary items model report. The results suggest
that were listed that ARL is reduced by
on the ASE as of appointing an international
31 December audit firm or paying a
2000 premium audit fee, but is
extended by aspects of
potentially bad news
Behn et al. Determinants of USA 2001, one year 179 observations ARL Client-related impediments Univariate and Lack of sufficient personnel
(2006) ARL prior to the (personnel, process, and multivariate resources, both with the client
SOX Act of technology), audit-related (linear and the audit firm hindered a
2002 and three impediments (personnel, process, regression) significant reduction in prior
years prior to and technology), and implementing ARL. The reported average
SOX’s a quarterly audit reporting system ARL was 35 days, and
implementation expected to be 26 days after
dates SOX’s implementation in 2006
Karim et al. The effect of Bangladesh 1990-1999 57 companies Audit delay, Establish SEC in 1993 and issue T-test Improvement in timeliness of
(2006) regulation on financial new companies Act 1994 financial reporting
timeliness of statement
reporting issue delay
(continued)
Determinants

lag
of audit report

65

Table I.
 66
10,1

Table I.
JAAR

Dependent Research
Source Object of study Country Period of study Sample variable Main independent variables design Significant variables

El-Banany Determinants of Egypt 2004 27 banks ARL International affiliation, size, audit Linear International affiliation, size,
(2006) ARL in complexity, profitability, and regression audit complexity, and
Egyptian banks extraordinary items model profitability
Owusu-Ansah Determinants of Greece 1999 294 listed Reporting Selected company-specific Multivariate Size and auditor type
and Leventis reporting companies lead-time (company size, gearing, insider regression
(2006) lead-time equity shareholding and industry (OLS)
type) and audit-related factors (the
number of remarks and auditor
type)
Lee et al. Compares the USA 2000-2004 9,555 The total Multinational firms, and domestic Regressions Weakly support the
(2008) timeliness of report lag firms models hypothesis that auditors take
earnings longer to audit multinational
reports of firms
multinational
firms with that
of domestic
firms
Ahmad and Determinants of Malaysia 1996-2000 100 listed Audit delay The company size, industry, sign T-test, chi Industry, audit opinions,
Kamarudin audit report companies of income, extraordinary items, square, (OLS) income, year end, and size of
(2003) delay auditor, year end, debt proportion, audit firm
size of audit firm, and audit opinion
Hossain and Determinants of Bangladesh 1993 78 listed Audit delay Size of the company, debt-equity Univariate and The industry type
Taylor (2008) audit report companies ratio, profitability, subsidiaries of multivariate
delay multinational companies, audit (linear
firm size, audit fees, and industry regression)
type
Wermert et al. Determinants of USA 1991 71 public ARL Size, audit firm structure, income, Multivariate All variables are significant
(2000) the client’s companies issuance of a going concern statistical
cycle time, and opinion, number of business (Canonica
the audit’s cycle segments, the importance placed correlation
time by top management on timely analysis)
financial reporting, and type of
industry
 Variables
Expected
Variable relationship
name Definition Measurement expected with ARL Source of data

Dependent variable
ARL Audit report lag Represents the number of days elapsing between the end of the fiscal Annual reports
year and the completion of the audit for the current year for each
individual firm (the audit report date)a
Independent variables
(1) Corporate governance variables
OWNCON Ownership Percentage of company shares held by the largest 5 owners Negative Annual reports or
concentration collected directly from
BINDs Proportion of The proportion of non-executive directors to total number of directors Negative the companies
independent is the number of non-executive directors on the board divided by the
non-executive directors total number of directors on the board at the year-end
DUAL CEO duality The presence of CEO duality is measured by coded “1” if CEO is the Positive
chairman and 0 otherwise
ACEXIST Existence of an audit Dummy variable, 1 if the firm has an audit committee, 0 otherwise Negative
committee
(2) Control variables
SIZE Company (client) size Natural log of year-end total assets Negative Annual reports
AUDTYPE Type of auditor Dummy variable, 1 if auditor is one of the former Big-4 audit firms, 0 Negative
otherwise
INDUS Industry Dummy variable, 1 if a company is financial, 0 if otherwise Negative
PROF Profitability Net income to year-end total assets Negative
Sources: aThis is also the dependent variable used by, for example, Ashton et al. (1989); Newton and Ashton (1989); Leventis et al. (2005), while Ashton
et al. (1987) used the natural log of ARL
Determinants

lag

and sources
Description of variables
of audit report

67

Table II.
JAAR A major contribution of this paper is the inclusion of an important new variable.
10,1 Leventis et al. (2005) note that while prior models are able to explain a significant
amount of AL, a considerable portion of AL remains unexplained. They suggest that
future research examines the effect of incorporating CG characteristics into the
analysis.
The present paper focuses on four CG-related characteristics (ownership concentration,
68 independence of the board, duality of CEO, and existence of an audit committee); beside
four control variables (company size, type of auditor, industry, and profitability) that are
expected to have particular relevance to the Egyptian setting, as follows:

4.1 Corporate governance characteristics

Although an increasing amount of research has focused on the relationship between
CG structure and the disclosure and performance of the firm, there is no empirical work
to examine the impact of CG characteristics on ARL. As noted earlier, new explanatory
variables, CG characteristics, have been introduced to see whether these can explain
the AL in developing countries in general and in Egypt in particular.
Kapardis and Psaros (2006) reported that CG is not a new phenomenon and it has
been addressed by various authoritative committees such as Cadbury Report (1992),
Greenbury (1995), Hampel Report (1998), Turnbull Report (1999) and Higgs (2003).
Indeed, Mertzanis (2001) noted that the effort to reform CG began in the USA as early
as the 1970s. Consequently, while CG is anything but a new area of enquiry, it has
taken on greater international significance since the mid-1990s, in particular, for
developing economies (including that of Egypt).
Despite the importance of CG, there is surprisingly little professional guidance on
which factors to consider in assessing the strength of CG when developing an audit
strategy. However, for auditors, the adoption by their clients of a perspective that goes
beyond the audit committee and a monitoring approach may reduce the client’s overall
business risk and in turn may potentially affect subsequent audit risk assessments. For
example, a strong monitoring function would provide greater assurance that controls
are operating effectively, which should reduce the assessed control risk (AICPA, 1988,
1995, 1997). Further, in the case where a client’s governance structure has effectively
implemented a strong monitoring as well as a strong strategic perspective, there is the
potential for both a more efficient (e.g. less extent of tests of details) and a more
effective (greater assurance of the integrity of the financial statements) audit (Cohen
et al., 2002), and hence effect on ARL.
Figure 1 shows the research framework and variables used. A brief discussion of
those variables follows.
4.1.1 Ownership concentration. In Egypt, the CASE provides an interesting
scenario, since many listed companies were characterised by high ownership
concentration and, consequently, agency problems arising from the separation of
ownership and control may be smaller than in other firms where the ownership
structure is more diversified. Thus, large dominant shareholders can exert a strong
influence on management behaviour in favour of their own interests with the result
that attention frequently focuses on conflicts between large and minority shareholders
(La Porta et al., 1999, 2001). In this regard, the archival literature shows that ownership
structure may have relevant CG implications (Shleifer and Vishny, 1997). Auditor
business risk affects the acceptable audit risk in the engagement, and hence the extent
 Independent variables Control variables Dependent variable Determinants
of audit report
Corporate governance lag
characteristics:
1- Ownership concentration Audit report lag (ARL)
2- Board independence
3- Duality of CEO
4- Existence of an audit committee
69
Control variables:
1- Company size Figure 1.
2- Type of auditor The research framework
3- Industry and variables used
4- Firm performance

of audit work required (Bamber et al., 1993). The increased extent of audit work can
result in audit delay (Knechel and Payne, 2001). Audit literature suggests that the
extent to which the client’s shares are widely held is one of the factors related to audit
business risk (Brumfield et al., 1983; Arens et al., 2004). Using the average number of
shares per shareholder as the proxy for the client’s ownership concentration, Bamber
et al. (1993) empirically show it is negatively related to audit delay. In another
investigation, Ettredge et al. (2005) found a similar result for a quarterly earnings
release lag.
Consequently, this high ownership concentration acts as a legal control influencing
Egyptian CG; also this view in line with Pucheta-Martı́nez and Fuentes (2007).
Previous studies in this area have not explicitly recognized that the amount of audit
work to be done is an increasing function of the auditor’s business risk associated with
the client auditor business risk[3] affects the engagement’s acceptable audit risk (the
risk of failure to detect a material misstatement) and hence, the extent of audit work
required. Without details of specific audits, it is not possible to quantify precisely
the risk associated with each client (Bamber et al., 1993). However, evidence on factors
that contribute to auditor business risk is available. The auditing literature suggests
that auditor business risk (and hence the effect on ARL) is related to the extent to
which the client’s shares are widely held and to the strength of the client’s financial
position (Brumfield et al., 1983). The more widely held the client’s shares, the greater
the number of individual investors that rely on the client’s financial statements.
Greater reliance on the client’s financial statements by diverse individual investors
increases the client’s (and the auditor’s) exposure to litigation and adverse publicity,
thereby increasing auditor business risk. Conversely, this risk (and hence the effect on
ARL) is expected to decline as the ownership of the client’s shares becomes more
concentrated (i.e. the less widely held the client’s shares) (Bamber et al., 1993). Hence,
the first hypothesis 1 seek to test is:
H1. There is a negative association between ARL and ownership concentration.
4.1.2 Board independence. According to the ECCG (2005, Para. 3.4), the BOD should
include a majority of non-executive members with an appropriate mix of skills,
technical, or analytical experience that is of benefit to the board or corporation. Also,
The BOD undertakes the designation of the chairperson and managing director; it is
preferred that the two posts are not held by the same person. Should joining the posts
be necessary, its reasons should be clarified in the corporation’s annual report; further,
JAAR a non-executive vice chairperson should be appointed. Finally, the board should
10,1 convene no less than once every three months. The number of conventions and the
names of the members who failed to attend the meetings of the board or its
sub-committees will be revealed in the corporation’s annual report (ECCG, 2005,
Para. 3.17).
The standard view in empirical finance, and in practice, is that the degree of board
70 independence is closely related to its composition. The board is presumed to be more
independent as the number of outside directors increases proportionately. Indeed, CG
in America has increasingly shifted toward “independent” boards with a majority of
outside (independent) directors (John and Senbet, 1998).
The question of why reporting lag varies across firms has motivated several
studies. It has been suggested that management has incentives to exercise discretion
over the timeliness of reporting (Givoly and Palmon, 1982). One major role of boards is
its control functions. Outside (independent) non-executive directors (IND) are perceived
as a tool for monitoring management behavior, resulting in more voluntary disclosure
of corporate information (Chen and Jaggi, 2000). The work of Fama and Jensen (1983)
provided valuable insights that the larger the proportion of INDs on the board, the
more effective it will be in monitoring managerial opportunism. Forker (1992) found
that a higher percentage of IND on boards enhanced the monitoring of the financial
disclosure quality and reduced the benefits of withholding information.
Cohen et al. (2002) argued that in the case where a client’s governance structure has
effectively implemented a strong monitoring as well as a strong strategic perspective,
there is the potential for both a more efficient (e.g. less extent of tests of details) and a
more effective (greater assurance of the integrity of the financial statements) audit.
This could then affect the assessed level of inherent and control risks, thereby affecting
the nature, timing, and extent of audit work. Hence, the second hypothesis to be
tested is:
H2. There is a negative association between ARL and independence of the board.
4.1.3 Duality of CEO. According to the ECCG (2005, Para. 3.6):
The BOD undertakes the designation of the chairperson and managing director; it is preferred
that the two posts not be held by the same person. Should joining the posts be necessary, its
reasons should be clarified in the corporation’s annual report; further, a non-executive vice
chairperson should be appointed.
In the work of Molz (1988), firms that have one individual who serves as both chairman
and CEO director (CEO duality) are considered to be more managerially dominated.
The person who occupies both roles would tend to withhold unfavorable information to
outsiders. Fama and Jensen (1983) argued that any adverse consequences could be
eliminated by market discipline. But Forker (1992) asserted that a dominant
personality in both roles poses a threat to monitoring quality. Also, Donaldson and
Davies (1991, p. 50) stated that “where the chief executive officer (CEO) is chair of the
board of directors, the impartiality of the board is compromised”.
Peel and Clatworthy (2001) referred that auditors may perceive the risk of audit
failure to be higher where the roles of chairman or chief executive are combined, since
it can be argued that there is more scope for concealment or misstatement of relevant
facts, and even fraud to be perpetrated. Hence, this influences auditors’ assessments of
both control risk and audit risk, audit hours and the level of substantive testing. It may Determinants
be expected that joint occupancy of both the positions of CEO and chair of the board of audit report
will be positively correlated with ARL. Consistent with these arguments, and for the
reasons outlined above, this variable is expected to be positively related to ARL. Hence, lag
the third hypothesis to be tested is:
H3. There is a positive association between ARL and duality of CEO.
71
4.1.4 Existence of an audit committee. The expectation that audit committees exercise
an active monitoring of the company financial reporting process is well established and
this role has been confirmed by many CG codes and professional pronouncements over
the last 10-15 years (Song and Windram, 2004).
In a recent work Davidson et al. (2005) reported that prior published literature
indicates that the effectiveness of an audit committee is dependent, in part, on the
extent to which the committee is independent, its frequency of meetings and its size. It
is contended that audit committees are unable to function effectively when members
are also executives of the firm. Both the published literature and governance reports
suggest that audit committees should consist exclusively of non-executive or
independent directors (Menon and Williams, 1994; Blue Ribbon Committee – BRC,
1999; ASX, 2003). This is supported by research that demonstrates a relationship
between audit committee independence and a higher degree of active oversight and a
lower incidence of financial statement fraud (Jiambalvo, 1996; McMullen and
Raghundan, 1996).
The academic literature and recent CG pronouncements recognized the pivotal role
of audit committees in financial reporting. The Cadbury Report (1992), in the UK,
highlighted the audit committee as a central mechanism for ensuring good financial
reporting and internal control. In the USA, the BRC (1999) made specific
recommendations on how to improve the effectiveness of audit committees.
The recommendation of the Egyptian’s CG code to establish audit committees in
listed companies includes some recommendations concerning audit committee features
and potential tasks. The most important of these is the notion that committee
formation and composition in general should be exclusively content-driven. These
tasks are considered in No. 6 of the Code. The ECCG (2005, No. 6) prescribes a series of
characteristics an effective audit committee should possess. The ECCG extends the
notion of director independence that has been widely applied to boards to emphasize
that audit committees should also be independent. The rationale is that independent
directors serving on audit committees are more likely to be free from management’s
influence in ensuring that objective financial information is conveyed to shareholders.
Second, to monitor effectively the quality of financial information that is disclosed by
the firm, committee members should have essential skills in understanding and
interpreting that information correctly. The ECCG suggests that audit committees
should be composed of at least three non-executive board members. At least one of its
members should have financial and accounting expertise. If the number of
non-executives on the BOD is less than three, one or more members may be
appointed from outside the corporation (ECCG, 2005, Para. 6.1). Also, the board should
constitute at minimum an audit committee consisting of a number of non-executive
board members. The audit committee shall be responsible for the oversight of the
internal audit department and the corporation’s procedures (ECCG, 2005, Para. 3.22).
JAAR The audit committee is expected to provide assistance in resolving conflicts with
10,1 management and to lead to some improvement in overall audit quality (Karamanou
and Vafeas, 2005). Hence, this decreases ARL.
The audit committee is now being viewed as a principal player in the effort to
implement governance reforms and to rebuild public confidence in financial reporting.
As a result of these new measures and responsibilities, there will also be changing
72 relationships between management, the audit committee, and the external auditor.
According to Lambe (2005), perhaps three particular priorities for audit committees
stand out:
(1) effective oversight of management and financial reporting;
(2) strengthening communication between management and the external auditor
(and effective monitoring of the external auditor); and
(3) independence and knowledge.

Although the audit committee is only one dimension of broad-based CG, a lack of
appropriate audit committee oversight can ultimately contribute to corporate failure
and diminish public confidence in the mechanism. Conversely, recent evidence
suggests that strong CG (including an independent audit committee) has the potential
to increase audit effectiveness and efficiency by reducing:
.
the auditor’s perceptions of client business risk;
.
the auditor’s control risk judgments for specific audit assertions; and
.
the amount of planned substantive testing (Cohen and Hanno, 2000).

A more recent experimental study by Sharma et al. (2007) manipulated CG strength as

strong, moderate and weak to test the impact on risk, audit planning and testing. The
manipulations related to both board and audit committee characteristics, the latter
including audit committee composition, meeting frequency and interaction with the
external auditors. The study found that the client’s CG structure influences auditors’
assessments of both control risk and audit risk, planned audit hours and the level of
substantive testing (Stewart and Munro, 2007). Hence, the fourth hypothesis to be
tested is:
H4. There is a negative association between ARL and existence of an audit
committee.

4.2 Control variables

4.2.1 Company size. There are several studies which have found that there is a
significant association between the size of the company and the AL in both developed
and developing countries (Table I).
There are some justifications why company size could be negatively related to the
extent of AL. Larger companies may be hypothesized to complete the audit of their
financial reports earlier than smaller companies for a variety of reasons. First, it has
been argued that the larger companies may have stronger internal controls, which in
turn should reduce the propensity for financial statements errors to occur and enable
auditor(s) to rely on controls more extensively and to perform more interim work
(Carslaw and Kaplan, 1991, p. 23). Second, larger companies have the resources to pay
relatively higher audit fees to perform soon after the year end of the financial year. Determinants
Third, larger companies may be monitored more closely by investors, trade unions and of audit report
regulatory agencies, and thus face greater external pressure to report earlier.
Therefore, researchers such as Davies and Whittred (1980), Ashton et al. (1989) and lag
Carslaw and Kaplan (1991) argued that to reduce uncertainty about performance that
might reduce the share price, the larger firms tend to complete their audit work as soon
as possible in order to release their annual reports. Fourth, large firms are also more 73
likely to have advanced accounting systems and better internal controls, and they are
also more likely to have formal policies and procedures that will lend themselves to
timely completion. Finally, larger companies may be able to exert greater pressures on
the auditor to start and complete the audit in time (Carslaw and Kaplan, 1991).
Owusu-Ansah and Leventis (2006) empirically investigated the effects of both
company-specific and audit-related factors on timely financial reporting practices of
group companies listed on the Athens Stock Exchange (ASE). The results of there
descriptive analysis indicates that 92 per cent of the companies are prompt reporters.
A multivariate regression analysis suggests that large companies are prompt reporters.
In current study, log of total assets has been used as the measures of company size.
Total assets have commonly been used to measure size in previous studies of AL
(Ashton et al., 1989; Davies and Whittred, 1980; Newton and Ashton, 1989). The author
includes the log of total assets (SIZE) to control for the effect of size as this has been
found to be negatively associated with ARL. Based upon the results of prior studies,
the fifth hypothesis to be tested is:
H5. There is a negative association between ARL and company size.
4.2.2 Type of auditor[4]. There are several studies which have examined empirically
the relationship between the characteristics of the audit firm (size of audit firm or
international link of the audit firm) and AL (Carslaw and Kaplan, 1991; Gilling, 1977).
Whereas Gilling (1977) found a significant positive relationship between the audit
delay and the size of the auditing firms, Garsombke (1981), Carslaw and Kaplan (1991)
and Davies and Whittred (1980) found no significant association between the audit
firm size and audit delay.
It is more likely that the larger audit firms have a stronger incentive to finish their
audit work more quicker in order to maintain their reputation. Otherwise, they might
lose the reappointment as the auditor of their client companies in the coming year(s).
As the larger and more well known audit firms have more human resources than
smaller firms, it has been argued that these audit firms may be able to perform their
audit work more quickly than smaller audit firms (Hossain and Taylor, 1998). This
suggests that auditors who are employed by small audit firms spend a longer time on
auditing listed companies. Small audit firms may not have focused on procedures and
strategies to minimize audit time, while big firms may have the advantage of using
presumably more efficient audit technologies (Newton and Ashton, 1989; Leventis et al.,
2005). In the current study, the auditors are classified into two groups-Big 4, and other
firms. Accordingly, the author also expects ARL to be inversely related to audit firm
size. Hence, the sixth hypothesis to be tested is:
H6. There is a negative association between ARL and type of auditor.
JAAR 4.2.3 Industry. Earlier research divided industries into two categories (financial,
10,1 e.g. banks and other financial institutions and insurance companies; and non-financial)
for purposes of analysis (Hossain and Taylor, 2008). The author uses two measures to
examine the impact of company industry membership on AL. One is whether the
company belongs to a financial industry; the other is whether the company belongs to a
non-financial industry.
74 Earlier research has used industry type as an explanatory variable for AL. One
industry may have complex manufacturing process while others may not. The
adoption of different industry-related accounting measurement, valuation and
disclosure techniques and policies may cause lag in preparing accounts and audit of
complex industries. Therefore, the time to perform the audit work may be longer for
the companies having complex manufacturing process than other companies. For
example, AL is expected to be shorter for companies in the financial industry that hold
little inventory or fixed assets (Bamber et al., 1993). The financial assets they do hold
are easier to audit than non-financial assets. Therefore, audits of financial companies
are expected to require less time than audits of non-financial companies. Studies by
Ashton et al. (1989), Newton and Ashton (1989) and Bamber et al. (1993) consistently
found that financial companies have shorter ALs compared to non-financial
companies. AL is expected to be shorter for financial services companies because
such companies typically have little or no inventory. Inventories are difficult to audit
and represent an area where material errors frequently occur. Thus, a lower percentage
of inventory assets, relative to other types of assets, may lower AL for financial
services companies (Carslaw and Kaplan, 1991). Hence, the seventh hypothesis to be
tested is:
H7. ARL will be shorter for financial companies than non-financial companies.
4.2.4 Firm performance. Prior research has found that firms that experience losses
experience longer ARLs (Bamber et al., 1993; Schwartz and Soo, 1996). The expected
role of a reporting loss on AL is suggested for several reasons. First, where a loss
occurs, companies may wish to lag the bad news. If the company experiences losses,
management may wish to lag in releasing the corporate annual report in order to avoid
the discomfort of communicating it as it is “bad news”. It has been argued that a
company with a loss may request the auditor to schedule the start of the audit later
than usual. On the other hand, companies having higher profitability may wish to
complete the audit of their accounts as early as possible in order to quickly release their
audited corporate annual reports to convey the “good news”. Second, there may be
greater perceived auditor business risk for audits of companies reporting losses.
Furthermore, losses are often associated with complex audit issues such as inventory
obsolescence or recoverability of assets, also requiring additional substantive evidence
collection. Third, companies with income that is lower than expected may spend
additional time verifying reported results or searching for unrecorded income. Fourth,
an auditor may proceed more cautiously during the audit process in response to a
company loss if the auditor believes the company’s loss increases the likelihood of
financial failure or management fraud (Carslaw and Kaplan, 1991). Hence, the eightieth
hypothesis to be tested is:
H8. There is a negative association between ARL and profitability.
5. Research design Determinants
The empirical work in this study is based on the annual reports of Egyptian listed of audit report
companies of the CASE. The sample and regression model, described as follows.
lag
5.1 Sample
The sample covers listed Egyptian companies for year 2007. The total number of
corporate annual reports of the companies listed on the CASE available was 372 75
companies. The time audit lag data on the 85 (22.85 per cent) sample companies were
taken from their annual reports. The balance sheet date represents the year end date
for which the financial reports were prepared. The profit, total assets, and other
variables were extracted from the annual reports (Table II). In addition, the figures for
shareholder’s equity were calculated from the information provided in the annual
reports. The interval period (i.e. AL) has been calculated from the dates supplied by the
corporate annual reports being the interval of days between balance sheet date and the
date auditor’s report.

5.2 Regression model

This paper is the first one to examine CG characteristics in Egypt as determinations of
ARL. A multiple regression analysis is used, modeling ARL as a function of
explanatory variables. Besides, using variables which are found related to ARL in prior
research as control variables, the author includes CG characteristics as additional
variables in his study (equation (1)).
A regression model was used to test the association between the dependent variable
of ARL and the independent variables of proportion of ownership concentration
(OWNCON), independence of the board (BINDs), duality of CEO (DUAL), existence of
an audit committee (ACEXIST), company size (SIZE), type of auditor (AUDTYPE),
industry (IDUS), and profitability (PROF) (equation (2)):

ARL ¼ f ðCorporate governance variables þ Control variablesÞ ð1Þ

ARL ¼ b0 þ b1 ðOWNCONÞ þ b2 ðBINDsÞ þ b3 ðDUALÞ þ b4 ðACEXISTÞ

ð2Þ
þ b5 ðSIZEÞ þ b6 ðAUDTYPEÞ þ b7 ðIDUSÞ þ b8 ðPROFÞ þ 1

where b0, the constraint coefficient of regression; b1-b4, regression coefficiencies of

CG variables; b5-b8, regression coefficiencies of control variables; 1, random error
term.
Variable definitions, expectations and sources of the dependent variable and
independent variables used in examining the research hypotheses are shown in
Table II.

6. Results
6.1 Descriptive statistics
Descriptive statistics of the variables are presented in Table III. The overall results of
this study indicate that the total interval of time between balance sheet date and the
date of audit end meeting averages 67.21 days (standard deviation of 18.66 days). The
ARL for each of the 85 listed sample companies ranged from a minimum interval of
JAAR
Variables N Mean Minimum Maximum SD
10,1
Dependent variable
ARL (days) 85 67.2118 19.00 115.00 18.66056
Independent variables
OWNCON 85 0.7462 0.01 1.00 0.20264
76 BOIND 85 0.8074 0.40 1.00 0.13666
DUAL 85 0.3294 0.00 1.00 0.47279
ACEXI 85 0.5647 0.00 1.00 0.49874
SISE 85 20.5246 15.28 24.89 2.09648
AUDTYPE 85 0.4000 0.00 1.00 0.49281
INDUS 85 0.1176 0.00 1.00 0.32410
PROF 85 0.1016 2 0.12 0.34 0.09038
Notes: ARL, audit report lag; OWNCON, ownership concentration; BOIND, proportion of independent
Table III. non-executive directors; DUAL, duality of CEO; ACEXI, existence of an audit committee; SISE,
Descriptive statistics company size; AUDTYPE, type of auditor; INDUS, industry; PROF, profitability

19 days to a maximum interval of 115 days. This means that Egyptian listed
companies take approximately two months on average beyond their balance sheet
dates before they are finally ready for the presentation of the audited financial reports
to the shareholders. Also, it was found that, while most companies meet the regulatory
deadline, there is a wide variation between the financial year end and the first issue of
the financial reports. This evidence suggests that timeliness may be an important
concern for Egyptian companies in financial reporting policy.

6.2 Correlation analysis

Kaplan (1982) suggests that multicollinearity may be a problem when the correlation
between independent variables is 0.90 or above. However, Emory (1982) considered
more than 0.80 to be problematic. It is evident from Table IV that the correlation
between variables seems to indicate no severe multicollinearity problems. Also the
Durbin-Watson (DW) statistics (2.057) indicate that there is no severe autocorrelation.
The variance inflation factor (VIF), as appear in Table V, has been less than two for
each variable, which suggests that the multicollinearity problem is not severe
(Jonhnston, 1984).

6.3 Results of regression analyses

The R 2 under the model was 0.612, which indicate that this model is capable of
explaining 61.20 per cent of the variability in the lag of audit in the sample companies
under study. The adjusted R 2 indicate that 57.10 per cent of the variation in the
dependent variable in the model is explained by variations in the independent
variables. The R 2 can be compared favourably with those reported by Ng and Tai
(1994), Ashton et al. (1987), Carslaw and Kaplan (1991) and Abdulla (1996). The model
is highly significant (F-statistic ¼ 14.98, p , 0.00). The F-ratio indicates that the
model significantly explains the variations in the audit lag in Egypt (Table V).
Generally, the regression results for my model are shown in Table V. The findings
support H2-H4 and provide evidence that CG characteristics (board independence,
duality of CEO, and existence of an audit committee) are significantly associated
Variables ARL OWNCON BOIND DUAL ACEXI SISE AUDTYPE INDUS PROF

ARL 0.018 20.293 * 0.035 20.300 * 2 0.003 2 0.103 2 0.380 * 2 0.243 *

OWNCON 0.018 20.104 0.137 20.039 2 0.032 2 0.161 2 0.100 0.146
BOIND 20.293 * 20.104 0.326 * 0.205 * 0.214 * 0.266 * 0.168 2 0.236 *
DUAL 0.035 0.137 0.326 * 0.363 * 0.181 * 0.194 * 0.133 2 0.093
ACEXI 20.300 * 20.039 0.205 * 0.363 * 0.352 * 0.475 * 0.247 * 2 0.033
SISE 20.003 20.032 0.214 * 0.181 * 0.352 * 0.491 * 0.474 * 0.022
AUDTYPE 20.103 20.161 0.266 * 0.194 * 0.475 * 0.491 * 0.373 * 2 0.031
INDUS 20.380 * 20.100 0.168 0.133 0.247 * 0.474 * 0.373 * 2 0.319 *
PROF 20.243 * 0.146 20.236 * 20.093 20.033 0.022 2 0.031 2 0.319 *
Note: *Significant at 5 per cent level or better ( p # 0.05)

Pearson correlation
Determinants

lag
of audit report

77

Table IV.
JAAR
Hypotheses and variables B Standard error b T Sig. T VIF
10,1
H1 OWNCON 2 0.775 6.896 20.008 20.112 0.911 1.098
H2 BOIND 2 59.075 10.954 20.433 25.393 0.000 * 1.260
H3 DUAL 2 6.407 3.219 20.162 21.991 0.050 * 1.302
H4 ACEXI 2 13.291 3.229 20.355 24.116 0.000 * 1.458
78 H5 SISE 3.954 .810 0.444 4.882 0.000 * 1.622
H6 AUDTYPE 6.545 3.468 0.173 1.887 0.063 1.642
H7 INDUS 2 40.223 5.131 20.699 27.840 0.000 * 1.555
H8 PROF 2 117.253 16.533 20.568 27.092 0.000 * 1.256
R 2 ¼ 0.612, adjusted R 2 ¼ 0.571, F-value ¼ 14.98, F-significance ¼ 0.000, DW ¼ 2.057
Table V.
Regression results Note: *Significant at 5 per cent level or better ( p # 0.05)

with ARL. It was found no support for a significant association between ownership
concentration (H1) and ARL at 5 per cent level.
H1 expects a negative association between ownership concentration and ARL.
Although the relationship is negative, it was found no support for a significant
association between ownership concentration and ARL at 5 per cent level; this is in line
with Leventis et al. (2005), but contrary with Bamber et al. (1993), which found that the
more concentrated the company’s ownership, the shorter the ARL.
H2 predicts a negative association between board independence and ARL. The
regression results for the model are shown in Table V. The findings support this
hypothesis and provide evidence that board independence is significantly associated
with ARL. This may mean that the monitoring role of the more independent board can
have a positive impact on financial disclosure quality and more efficient and effective
audit, and hence reduce the ARL.
H3 predicts a positive association between duality of CEO and ARL. My findings
support this hypothesis and provide evidence that duality of CEO is significantly
associated with ARL at the 5 per cent level. This may be due to that a dominant
personality in both roles, chairman and CEO, poses a threat to monitoring quality and
withholding unfavourable information to outsiders; and hence increase the ARL.
H4 expects a negative association between existence of an audit committee and
ARL. The findings support this hypothesis and provide evidence that existence of an
audit committee is significantly associated with ARL. This may imply that audit
committee play a vital role in ensuring strengthening communication between
management and the external auditor, influences auditors’ assessments of both control
risk and audit risk, planned audit hours and the level of substantive testing, and good
financial reporting; and hence reduce the ARL.
According to control variables, the author found support to H5, H7 and H8 and
provide evidences that company size, industry, and profitability are significantly
associated with ARL. This is in line with the results of most prior studies (Table I
related to literature review).
The negative effect of size (H5) on ARL in Egypt is consistent with the prediction in
the literature, implying that large Egyptian companies are prompt reporters compared
to their smaller counterparts. This result in line with prior studies (Chambers and
Penman, 1984; Ng and Tai, 1994; Owusu-Ansah and Leventis, 2006). Contrary with
expectation, it was found no support for a significant association between type of Determinants
auditor (H6) and ARL at 5 per cent level (Table V), This result opposite with the of audit report
literatures linking type of auditor and ARL (Jaggi and Tsui, 1999; Leventis et al., 2005;
Owusu-Ansah and Leventis, 2006) (Table I). The negative coefficient for industry type lag
(H7) is consistent to that expected from theory and from most prior empirical results
(Ashton et al., 1989). Financial companies were hypothesized to have a shorter audit
delay than non-financial companies as the former normally have a lower level of 79
inventory or fixed assets. Finally, the negative relationship between ARL and
profitability variable was found to be significant at the 5 per cent level. This result
consistent with most prior literature as shown in Table I (Ashton et al., 1989;
El-Banany, 2006). This means firms that experience losses experience longer ARLs.
This result provides an evidence that companies having higher profitability may wish
to complete the audit of their accounts as early as possible in order to quick release
their audited corporate annual reports to convey the “good news”.
In conclusion, this study provides evidence to show that ARL for Egyptian
companies is affected by CG mechanisms, specifically, board independence,
independence of CEO, and existence of an audit committee. The results of this study
provide useful information for stakeholders (especially investors and regulators).

7. Conclusion and suggestions for further research

7.1 Conclusion
This study provides empirical evidence relating to the ARL of companies listed on the
CASE in the year 2007, through identifying the impact of CG characteristics on ARL.
The analysis of sample companies listed on CASE shows that the mean of ARL is more
than 67 days. The ARL for each of the 85 listed sample companies ranged from a
minimum interval of 19 days to a maximum interval of 115 days and Egyptian listed
companies take approximately two months on average. The results indicate that board
independence, duality of CEO, and existence of an audit committee significantly affect
ARL. But ownership concentration was found not to be significantly associated with
ARL. Also, three control variables significantly affected ARL (company size, industry
and profitability), but the type of auditor was found not to be significantly associated
with ARL. The adjusted R 2 indicate that 57.10 per cent of the variation in the
dependent variable in the regression model is explained by variations in the
independent variables.

7.2 Limitations of the study

.
Owing to a lack of data on CG characteristics, the study employed only
proportion of ownership concentration, independence of the board, duality of
CEO, and existence of an audit committee to measure CG practices in publicly
listed firms.
. The findings of this study may be generalized after taking into consideration
certain limitations. This study considers the annual reports for a single year.
Further research can be undertaken to measure audit lag longitudinally to
determine whether the trend of audit lag has improved over time.
JAAR .
Although the sample of 85 companies from Egyptian is reasonable, further
10,1 research can be undertaken with a larger sample. This might be useful with
respect to the stability of the regression equation.
. Like most prior studies (Ashton et al., 1989; Ahmed, 2003; Lee et al., 2008), the
current research also adopts a single mechanism focus in that it investigates the
time taken to release annual corporate reports. Other timely information sources
80 such as public announcements of earnings and publication of web-based annual
reports are not considered. In recent years, some large firms in Egypt have begun
public announcements of earnings and releasing abbreviated web-based annual
reports prior to holding the annual general meeting.

7.3 Suggestions for further research

.
To improve the predictive model of ARL, further research should include
additional company-specific and auditor-specific variables. For example, such
specific variables may include the quality of the company’s internal control,
family ownership, managerial ownership, type of sector (private or public),
effectiveness of audit committee, the role of internal audit in supporting external
auditing, and foreign listing.
.
Future studies could concentrate on the relationship between CG quality and
ARL, through develop an instrument to compute a CG index that could be
applied for all publicly listed firms in CASE.
.
Further research could concentrate on boards of directors’ and audit committees’
influence on ARL over a longer period. Other measures of these variables could
also be developed, such as their experiences and their activities.
.
Further research could concentrate on the impact of ownership structure on ARL.
.
Market capitalization of companies could be the proxy for the size of the
companies. However, market value of the companies was not readily available at
the time of preparation of this paper. This variable could be a potentially
important explanatory variable in relation to developing countries like Egypt.
Notes
1. Audit lag or delay as measured in this paper refers to the number of days from the end of the
accounting year to the date of the audit report. This delay includes two components:
company delay, i.e. the time taken in preparation of the financial accounts, and audit firm
delay which represents the time taken by the audit work. Measuring both types of delay
could lead to more informative analysis but appropriate data are not available. Givoly and
Palmon (1982) suggested that variability in the length of the annual external audit is a factor
that explains variability in reporting delay. They maintained that the “single most important
determination of the timeliness of the earning announcement is the length of the audit
(p. 491)”. Givoly and Palmon’s argument distinguishes between reporting delay, and audit
delay, the length of time from year end to the audit report date. Although reporting delay and
audit delay are likely to be highly correlated, empirical evidence suggests that they are not
identical (Ashton et al., 1989).
2. For example, the FASB views timeliness as an “ancillary aspect” of relevance, which is one
of the two primary decision-specific qualities delineated by Statement of Financial
Accounting Concepts No. 2 (FASB, 1980). The FASB further suggests that “a lack of
timeliness can rob information of relevance it might otherwise have had” (Para. 56).
 3. The term auditor business risk refers to the risk to the audit firm from the client relationship. Determinants
This risk differs from audit risk, which is the risk that the financial statements are not fairly
stated after an unqualified opinion is issued (Bamber et al., 1993). of audit report
4. In Egypt, the “Big four auditors” are local affiliated of the Big Four international firms: lag
Saleh, Barsoum, Abdel Aziz & Co. – member of Deloitte Ross Tohmatsu; Hafez Ragab –
member of Ernst & Young; Hazem Hassan – member of KPMG and Mansour & Co. member
of Price Waterhouse. 81

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86 Corresponding author
H.A.E. Afify can be contacted at: helal_afify_2003@yahoo.com

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