Internal Control Quality, Egyptian Standards on Auditing and External Audit Delays: Evidence from the Egyptian Stock Exchange

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 E gyptian Standards on Auditing ( ESA ) on this relationship in the E gyptian 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 E gyptian standard‐setters with respect to the development of internal auditing standards.