Internal control quality, Egyptian standards on auditing and external audit delays: Evidence from the Egyptian stock exchange

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Accounting Department

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Research Article

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International Journal of Auditing

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This paper examines the impact of internal control quality (ICQ) on external audit delays as proxied by the auditor component of audit report lag (A-ARL) and the effect of the adoption of the Egyptian Standards on Auditing (ESA) on this relationship in the Egyptian context. Using a balanced panel data of 344 firm-year observations spanning from 2007 to 2010, we hypothesise and empirically find the following. First, ICQ represents a key determinant of timely disclosure, as it contributes significantly to the reduction of A-ARL. Second, the adoption of the ESA has significantly contributed to the improvement of audit practices by reducing A-ARL. Third, the adoption of ESA has also strengthened the relationship between A-ARL and ICQ for the post-adoption period of these standards. Additional analysis is conducted to examine the impact of industry characteristics on the relationship between ICQ and A-ARL and the association remains significant regardless of the sector considered. In order to make a more informative analysis, we examine the effect of ICQ on the management component of audit report lag (M-ARL) and we document a positive association between both variables. The results contribute to the literature dealing with the relation between A-ARL and ICQ by shedding light on the importance of ICQ in audit practices in an emerging country characterised by weak legal enforcement and a high level of secrecy. Findings also have policy implications for Egyptian standard-setters with respect to the development of internal auditing standards. © 2013 John Wiley and Sons Ltd.

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