The extent of audit report lag and governance mechanisms in the Islamic banking institutions in Malaysia

Abstract

Timeliness of financial reports is a mirror of up-to-date financial information which is considered as the main driver for useful financial reports. The extent of audit report lag is found to be the most observable indicator for timely financial reports because financial reports cannot be published without being audited and verified (i.e. true and fair view) by the external auditor of the firm. This study examines the association between the extent of audit report lag and governance mechanisms in the Islamic banking institution in Malaysia. The governance mechanisms are board independence, audit committee size, expertise and meeting and Shari’ah committee expertise. Consequently, the study employed agency theory to explain the hypotheses development. From 112 observations of the study sample, the findings of panel data analysis indicated that the extent of audit report lag is significantly associated with audit committee expertise, audit committee meeting and the size of Islamic bank. Board independence, audit committee size and Shari’ah board expertise were found to have a weak negative association with the extent of audit report lag, while busy-season variable was found to have a weak positive relationship with the extent of audit report lag. Apart from contributing to the literature on corporate reporting and governance system, this study provides a feedback to the regulatory bodies on the past and current process of financial reporting practices and governance practices in the Islamic banking institution in Malaysia.