Audit Committee Effectiveness, Internal Audit Function and Financial Reporting Lag: Evidence from Malaysia

Main Article Content

Rohaida Ismail
Norman Mohd-Saleh
Rubayah Yaakob


This study examines the association among the effectiveness of audit committee, arrangement of internal audit function (IAF), and financial reporting lag (FRL). It also expands the literature by exploring the effect of IAF sourcing arrangement on financial reporting lag. Financial reporting lag is measured based on the number of days between the dates of the financial year end to the date of announcement of financial reporting. The effectiveness of the audit committee consists of size, independence, meetings, experts, and the chairperson’s qualifications. The internal audit arrangement is either performed in-house or outsourced to a third-party internal audit service provider and the cost of incurred for the IAF in the financial year. The agency theory is applied to explain the framework of this study and tested on 2,284 Malaysian listed companies from 2012 to 2015. Results show that IAF sourcing arrangement and cost are significantly associated with financial report lag. These findings offer important implications on audit committee and IAF literature through improving the timeliness of financial information.

Article Details

How to Cite
Ismail, R. ., Mohd-Saleh, N. ., & Yaakob, R. . (2022). Audit Committee Effectiveness, Internal Audit Function and Financial Reporting Lag: Evidence from Malaysia. Asian Academy of Management Journal of Accounting and Finance, 18(2), 169–193.


Abbott, L. J., Parker, S., & Peters, G. F. (2004). Audit committee characteristics and restatements. Auditing, 23, 69–87.

Abbott, L. J., Parker, S., & Peters, G. F. (2012). Internal audit assistance and external audit timeliness. Auditing, 31(4), 3–20.

Abdelsalam, O. H., & Street, D. L. (2007). Corporate governance and the timeliness of corporate internet reporting by U.K. listed companies. Journal of International Accounting, Auditing and Taxation, 16(2), 111–130.

Abdullah, S. N. (2006). Board composition, audit committee and timeliness of corporate financial reports in Malaysia. Corporate Ownership and Control, 4, 33–45.

Abernathy, J. L., Beyer, B., Masli, A., & Stefaniak, C. (2014). The association between characteristics of audit committee accounting experts, audit committee chairs, and financial reporting timeliness. Advances in Accounting, 30(2), 283–297.

Afify, H. A. E. (2009). Determinants of audit report lag. Journal of Applied Accounting Research, 10(1), 56–86.

Ahlawat, S. S., & Lowe, J. D. (2004). An examination of internal auditor objectivity: In- house versus outsourcing. Auditing A Journal of Practice & Theory 23(2):147–158.

Al-Ajmi, J. (2008). Audit and reporting delays: Evidence from an emerging market. Advances in Accounting, 24(2), 217–226.

Alzeban, A., & Gwilliam, D. (2014). Factors affecting the internal audit effectiveness: A survey of the Saudi public sector. Journal of International Accounting, Auditing and Taxation, 23(2), 74–86.

Che-Ahmad, A., & Abidin, S. (2009). Audit delay of listed companies: A case of Malaysia. International Business Research, 1(4), 32–39.

Bédard, J., Chtourou, S. M., & Courteau, L. (2004). The effect of audit committee expertise, independence, and activity on aggressive earnings management. Auditing: A Journal of Practice & Theory, 23(2), 13–35.

Bédard, J., & Gendron, Y. (2010). Strengthening the financial reporting system: Can audit committees deliver? I nternational Journal of Auditing, 14(2), 174–210.

Bliss, M. A., Muniandy, B.. & Majid, A. (2007). CEO duality, audit committee effectiveness and audit risks. Managerial Auditing Journal, 22(7), 716–728.

Bromilow, B. C. L. (2010). Congratulations, you’re the audit committee chair. Now what? NACD Directorship, 36(2): 36–37.

Bursa Malaysia (2009). Corporate governance guide. Retrieved from /assets/5bb54d165f36ca0c341f0065/Pull-out_I.PDF

Carcello, J. V, Hollingsworth, C. W., & Neal, T. L. (2006). Audit committee financial experts: A closer examination using firm designations. Accounting Horizons, 20(4), 351–373.

Claessens, S., Djankov, S., & Lang, L. H. (2000). The separation of ownership and control in East Asian Corporations. Journal of Financial Economics, 58(1–2), 81–112.

Cohen, J. R., & Hanno, D. M. (2000). Auditors’ consideration of corporate governance and management control philosophy in preplanning and planning judgments. Auditing, 19, 132–146.

Collier, P., & Gregory, A. (1999). Audit committee activity and agency costs. Journal of Accounting and Public Policy, 18(4–5), 311–332.

Coram, P., Ferguson, C., & Moroney, R. (2008). Internal audit, alternative internal audit structures and the level of misappropriation of assets fraud. Accounting and Finance, 48(4), 543–559.

Dalton, D. R., Daily, C. M., Johnson, J. L., & Ellstrand, A. E. (1999). Number of directors and financial performance: A meta-analysis. Academy of Management Journal, 42, 674–686.

Desai, N. K., Gerard, G. J., & Tripathy, A. (2011). Internal audit sourcing arrangements and reliance by external auditors. Auditing: A Journal of Practice & Theory, 30(1), 149–171.

DeZoort, F. T., Hermanson, D. R., Archambeault, D. S., & Reed, S. A. (2002). Audit committee effectiveness: A synthesis of the empirical audit committee literature. Journal of Accounting Literature, 21, 38–75.

Engel, E., Hayes, R. M., & Wang, X. (2010). Audit committee compensation and the demand for monitoring of the financial reporting process. Journal of Accounting and Economics, 49, 136–154.

Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of Law and Economics, 26(2), 301–325.

Ghafran, C., & O’Sullivan, N. (2013). The governance role of audit committees: Reviewing a decade of evidence. International Journal of Management Reviews, 15, 381–407.

Ghafran, C., & Yasmin, S. (2018). Audit committee chair and financial reporting timeliness: A focus on financial, experiential and monitoring expertise. International Journal of Auditing, 22(1), 13–24.

Gilson, S. C. (1990). Bankruptcy, boards, banks, and blockholders. Journal of Financial Economics, 27(2), 355–387.

Givoly, D., & Palmon, D. (1982). Timeliness of annual earnings announcements: Some empirical evidence. The Accounting Review, 57(3), 486–508.

Glover, S. M., Prawitt, D. F., & Wood, D. A. (2008). Internal audit sourcing arrangement and the external auditor’s reliance decision. Contemporary Accounting Research, 25(1), 193–213.

Goodwin, J. (2003). The relationship between the audit committee and the internal audit function: Evidence from Australia and New Zealand. International Journal of Auditing, 7(3), 263–278.

Gujarati, D. N. (2004). Gujarati: Basic econometrics (4th ed.). Tata McGraw Hill.

Jaggi, B., & Tsui, J. (1999). Determinants of audit report lag: Further evidence from Hong Kong. Accounting and Business Research, 30(1), 17–28.

Kalbers, L., & Fogarty, T. (1998). Organizational and economic explanations of audit committee oversight. Journal of Managerial Issues, 10, 129.

Klein, A. (2002). Economic determinants of audit committee independence. Accounting Review, 77, 435–452.

Knechel, W. R., Sharma, D. S., & Sharma, V. D. (2012). Non-audit services and knowledge spillovers: Evidence from New Zealand. Journal of Business Finance and Accounting, 39(1–2), 60–81.

Krishnan, J. (2005). Audit committee quality and internal control: An empirical analysis. Accounting Review, 80, 649–675.

Lawrence, E. C. (1983). Reporting delays for failed firms. Journal of Accounting Research, 21, 606–610.

Lee, H.-Y., Mande, V., & Son, M. (2009). Do lengthy auditor tenure and the provision of non-audit services by the external auditor reduce audit report lags? International Journal of Auditing, 13, 87–104.

Lin, J. W., Li, J. F., & Yang, J. S. (2006). The effect of audit committee performance on earnings quality. Managerial Auditing Journal, 21(9), 921–933.

Malaysian Institute of Corporate Governance (MICG). (2001). Malaysian code on corporate governance. MICG.

MCCG. (2017). Malaysian Code on Corporate Governance. Kuala Lumpur: Securities Commission Malaysia.

McMullen, D. A., & Raghunandan, K. (1996). Enhancing audit committee effectiveness. Journal of Accountancy, 182(2), 79–81.

Menon, K., & Deahl Williams, J. (1994). The use of audit committees for monitoring. Journal of Accounting and Public Policy, 13(2), 121–139.

Mihret, D. G., & Admassu, M. A. (2011). Reliance of external auditors on internal audit work: A corporate governance perspective. International Business Research, 4(2), 67.

Mohd Saleh, N., Mohd Iskandar, T., & Mohid Rahmat, M. (2007). Audit committee characteristics and earnings management: Evidence from Malaysia. Asian Review of Accounting, 15(2), 147–163.

Munro, L., & Stewart, J. (2010). External auditors’ reliance on internal audit: The impact of sourcing arrangements and consulting activities. Accounting and Finance, 50(2), 371–387.

Mohamad-Nor, M., Shafie, R,. & Wan-Hussin, W. N. (2010). Corporate governance and audit report lag in Malaysia. Asian Academy of Management Journal of Accounting and Finance, 6(2), 57–84.

Nelson, S. P., & Shukeri, N. (2011). Corporate governance and audit report timeliness: Evidence from Malaysia, In Accounting in Asia, Emerald Group Publishing Limited, Bingley, pp. 109–127.

Owusu-Ansah, S., & Leventis, S. (2006). Timeliness of corporate annual financial reporting in Greece. European Accounting Review, 15(2), 273–287.

Pizzini, M., Lin, S., & Ziegenfuss, D. E. (2015). The impact of internal audit function quality and contribution on audit delays. Auditing: A Journal of Practice & Theory, 34(1), 25–58.

Prawitt, D. F., Sharp, N. Y., & Wood, D. A. (2012). Internal audit outsourcing and the risk of misleading or fraudulent financial reporting: Did Sarbanes-Oxley get it wrong? Contemporary Accounting Research, 29(4), 1109–1136.

Prawitt, D. F., Smith, J. L., & Wood, D. A. (2009). Internal audit quality and earnings management. The Accounting Review, 84(4), 1255–1280.

Pucheta-Martínez, M. C., & De Fuentes, C. (2007). The impact of audit committee characteristics on the enhancement of the quality of financial reporting: An empirical study in the Spanish context. Corporate Governance, 15(6), 1394–1412.

Rittenberg, L., & Covaleski, M. A. (2001). Internalization versus externalization of the internal audit function: An examination of professional and organizational imperatives. Accounting, Organizations and Society, 26(7–8), 617–641.

Rochmah Ika, S., & Mohd Ghazali N. A. (2012). Audit committee effectiveness and timeliness of reporting: Indonesian evidence. Managerial Auditing Journal, 27(4), 403–424.

Salleh, Z., Baatwah, S., & Ahmad, N. (2017). Audit committee financial expertise and audit report lag: Malaysia further insight. Asian Journal of Accounting and Governance, 8, 137–150.

Song, J., & Windram, B. (2004). Benchmarking audit committee effectiveness in financial reporting. International Journal of Auditing, 8(3), 195–205.

Stewart, J., & Munro, L. (2007). The impact of audit committee existence and audit committee meeting frequency on the external audit: Perceptions of Australian auditors. International Journal of Auditing, 11(1), 51–69.

Sultana, N., Singh, H., & Van der Zahn, J. L. W. M. (2015). Audit committee characteristics and audit report lag. International Journal of Auditing, 19(2), 72–87.

Tabachnick, B. G., & Fidell, L. S. (2001). Using multivariate statistics (5th ed.). New York: Pearson Education. Inc.

Vyas, D. (2011). The timeliness of accounting write-downs by u.s. financial institutions during the financial crisis of 2007–2008. Journal of Accounting Research, 49(3), 823–860.

Wan-Hussin, W. N., & Bamahros, H. M. (2013). Do investment in and the sourcing arrangement of the internal audit function affect audit delay? Journal of Contemporary Accounting and Economics, 9(1), 19–32.

Yang, J. S., & Krishnan, J. (2005). Audit committees and quarterly earnings management. International Journal of Auditing, 9(3), 201–219.