Title: Board independence, board diligence, board expertise and impact on audit report

lag in Malaysian market.

Ummi Junaidda Binti Hashim

Faculty of Business Management and Accountancy
Universiti Sultan Zainal Abidin
Gong Badak Campus, Kuala Terengganu, Terengganu, Malaysia
Email: junaidda@unisza.edu.my

Rashidah Binti Abdul Rahman

Deputy Director
Accounting Research Institute
Universiti Teknologi MARA
Shah Alam, Selangor, Malaysia
Email: shidah@salam.uitm.edu.my
Abstract
This paper examines the association between corporate governance
mechanisms and audit report lag among 288 companies listed at Bursa Malaysia for a
three year period from 2007 to 2009. It examines on one of the corporate governance
mechanisms, namely board of directors characteristics. Three characteristics of board of
directors are examined namely, board independence, board diligence and board expertise.
These characteristics are used to examine their effectiveness in assuring timeliness of
audit report. In this study, audit report lag refers to the number of days from the
companys year end (financial year) to the date of auditors report. Based on the analysis,
the results of this study show that audit report lag for the listed companies in Malaysia
ranges from 36 days to 184 days for the three year period. The results of this study show
that there are significant negative relationships between board diligence with audit report
lag. This study found that the number of meetings held by the board of directors in a
company is able to reduce audit report lag. A higher number of meetings being held
indicated the board is discharging their roles towards the company. This study however
could not provide any evidence on the link between board independence and board
expertise on audit report lag.

Electronic copy available at: http://ssrn.com/abstract=1717479

1.0 Introduction
Financial reports is one of the medium that provide users with quality information
and could assist them in decision-making process as investors of companies. The quality
of information is often attributed by the effectiveness and efficiency. Efficiency in the
context of quality information is often refers to timeliness concerning reporting delay
from the companys accounting year end to the date of the audit report is completed
(Chambers and Penman, 1984)1.
Timeliness of financial reporting is crucial because most users particularly the
shareholders and potential investors often rely on the financial reports before deciding
whether to retain as shareholders or to become investors of a company. Audit report lag
would lead the shareholders and potential shareholders to postpone their transaction on
shares or sales their current and purchase of new shares (Ng and Tai, 1994). This in turn,
would provide negative effect to the company.
In Malaysia, Bursa Malaysia has demand for timely financial reporting through
the provision of Chapter 2 and Chapter 9 of the Listing Requirements (2009), Bursa
Malaysia Securities Berhad. The demand of timeliness in financial reporting is crucial to
many users particularly the shareholders and potential investors. As reported in Bursa
Malaysia website 2010, there are few evidences of late submission of annual report
among listed companies. The companies are reported as late submission and reprimand
by the Bursa Malaysia when they breached the listing requirement paragraph 9.23(a).
This scenario has motivated this study to investigate it further in identifying the
responsible person to solve it.
Bursa Malaysia has also highlighted the role of directors play in maintaining
appropriate standards of corporate responsibility and accountability by having timely
financial reporting. Bursa Malaysia has expressed concern with regards to directors role
in corporate governance. The Malaysian Code on Corporate Governance (MCCG) which
was established in 2000 is later revised in 2007 also provides the role of the directors in a
company which includes reviewing and developing companys strategic plan, overseeing
and evaluating the management operationalisation, identifying and preventing risk and
reviewing the internal control system in order to ensure compliance with the laws, rules,
guidelines and regulations. Thus, this study aims to answer the following research
question: Could board of directors play an important role in effectively monitoring the
timeliness of audit report?
This study is important since there have been extensive improvements on the laws
and regulations imposed by Malaysian Institute of Corporate Governance (MICG) and
Bursa Malaysia to Malaysian companies. This is consistent with the actions of many
regulatory agencies and listing authorities around the world where requirements and
recommendations regarding timely disclosure of financial reports were issued
(Abdelsalam and Street, 2007). Accordingly, whether these requirements and
recommendations issued would affect the corporate governance performance among the
companies in terms of timeliness of audited annual report has yet to be extensively
examined.

Other than timeliness, the term audit report lag and audit delay also represent efficiency. These terms
are used interchangeably in this study.

Electronic copy available at: http://ssrn.com/abstract=1717479

Within the Malaysian context, studies that have examined the issue of timeliness
using firms specific variables (examples total assets, industry type) in Malaysia are
Ahmad and Kamarudin (2003) and Che-Ahmad and Abidin (2008). However, these two
studies did not examine the issue of timeliness in relation to corporate governance
mechanism.
Studies have proposed that corporate governance is an important determinant to
ensure the success of a company in various aspects such as companies performance
(Mohd Ghazali, 2010; Che Haat et al. 2008), financial reporting quality (Ismail et al.
2008; He et al. 2009), corporate failure (Hsu and Wu, 2010), audit quality (Wan Abdullah
et al. 2008), environmental reporting (Said et al. 2009; Buniamin et al. 2008), earnings
management (Abdul Rahman and Mohamed Ali, 2006; Xie et al. 2003). For example:
Afify (2009) examined the impact of corporate governance mechanisms on audit report
lag in Egypt. His results indicate that board independence, CEO duality and existence of
an audit committee significantly affect audit report lag. Similarly, Tauringana et al.
(2008) examined the link between corporate governance and audit report lag. However,
Afify (2009) and Tauringana et al. (2008) studies were conducted in a non-Malaysian
setting. This study extends the corporate governance literature by examining the issue of
timeliness of annual reports in the Malaysian market by incorporating corporate
governance, audit report lag and firms specific variables.
The main objective of the study is to evaluate the effectiveness of the corporate
governance mechanisms in ensuring timeliness of audit annual reports in Malaysia.
Specifically, this study examines the effectiveness of board of directors in assuring audit
report lag. Three variables of board of directors are examined, namely board
independence, board diligence and board expertise.
The remainder of this paper is organised as follows. Section two discusses on the
literature review and hypotheses development. Then, it is followed with section three
which discusses on research design. Section four provides the results including the
descriptive statistics for dependent and independent variables as well as on univariate and
fixed panel regression. Section five addresses the discussion on the results while section
six is conclusion for the study.
2.0 Literature review and Hypotheses Development
Corporate governance serves as a control mechanism in safeguarding against
inappropriate management behavior (Baker and Owsen, 2002) by reconciling the
interests of shareholders and managers (Fama and Jensen, 1983). Corporate governance
not only provides monitoring tool on the behavior of the directors, but also on monitoring
the overall performance of the company which include assuring quality of the financial
reports. The above statement show the importance of corporate governance in a company
and this is best justified by agency theory. In the view of resource based theory, ability,
qualification, and experience of the board of directors and audit committee are among the
other vital resources that the company possesses in enhancing it performance.
a) Board independence
Effective board of directors is an important mechanism of internal governance in
solving agency problems in managing an organisation (Che Haat et al. 2008). Thus, it is
3

Electronic copy available at: http://ssrn.com/abstract=1717479

necessitated to provide greater assurance of the financial reporting (Carcello et al. 2002).
Resolving the agency problem would be more effective when the boards are comprised of
independent directors. Many studies have argue that the effectiveness of the board would
increase when more non-executive directors are in the board of directors (Ho and
Williams, 2003; Weir et al. 2002). For example: Beasley and Petroni (2001) investigated
the association between board composition and the choice of auditors of 681 propertyliability insurance companies. They found that board of directors with higher proportion
of independent directors would have more tendencies to employ specialised brand name
auditors (high quality auditor) than board of directors with lower percentage of
independent directors. OSullivan, (2000) and Salleh et al. (2006) also found proportion
on non executive director had positive impact on audit quality. The authors stated that
non- executive directors pressure to have proper and intensive audit.
It is anticipated that increase of non-executive directors in the board of directors
also improves audit quality. Board independence with financial expertise is related to
more transparent disclosures on companies performance (Felo, 2009). They might
require more audit effort than the usual amount of effort being expensed which would
eventuate to an increase in audit quality and of consequence, reduce audit report lag.
Therefore, this leads to the first hypothesis developed in this study.
Ha1:

There is negative relationship between board independence and audit report lag.

b)

Board diligence

One way to evaluate whether the board members play their roles in representing
the shareholders is by observing the activities of the board. Activities of the board would
reflect the boards commitment in discharging its role as an agent in the company (Jensen
and Meckling, 1976). The board of directors is expected to have a firm grip on the
companys internal controls processes and heighten their vigilance in identifying,
addressing and managing risks that may have a material impact on the financial
statements and operations of the company (Corporate Governance Guide p.10, Bursa
Malaysia).
Diligent board of directors would be more concern on the financial reporting
aspects of the company. Lipton and Lorsch (1992) and Conger et al. (1998) provide
support that board of directors that meet frequently are more likely to discharge their
duties well. This indicates good internal control mechanism. A board of directors in a
company that has more frequent meetings would allows the board members to discuss
identified problems, and this lead to superior performance of the company (Evans and
Weir, 1995). Tauringana et al. (2008) found that significant negative relationship between
frequency of board meeting and timeliness of annual report for companies listed on the
Nairobi Stock Exchange (NSE) in Kenya. This indicates that companies which hold
meetings frequently published their annual reports earlier, increase the companys
performance and as an evidence of effective corporate governance mechanism.
The latest guide on corporate governance by Bursa Malaysia highlights that a
typical board of directors would holds a minimum of 6 to 8 board meetings annually.
With more frequent meetings, it would enable the auditors to rely more on the strong
internal control of the companies and reduce their workload. Of consequence, this would
lead to decreasing audit report lag. Therefore, this study hypothesized that:
4

Ha2: There is negative relationship between board diligence and the audit report lag.
c)

Board Expertise

Multiple directorships or cross directorships are also known as interlocking

directors. It is a situation where a director sits on a few boards (Haniffa and Cooke,
2000). Multiple directorships occur because such directors could offer their valuable
insights based on their experience being on board of another company (Dahya et al.
1996). The number of additional directorships could reflect a directors prominent
reputation and his ability in effective monitoring of the companies (Beasley, 1996).
Carcello et al. (2002) examined the board characteristics and audit fees and found that the
boards with multiple directorships are more supportive in looking for high quality
auditors. Their results show that the boards are more careful in discharging their duties.
Consistent with the resource based theory, the internal resources that the companys owns
may aid the company to be more prosperous or outperforming other companies. The
resources that the companys possess are the skills, experience and knowledge of the
board of directors. This in turn, would produce higher quality and reliable financial
reporting. This would also lead to reduction of auditors workload due to their heavy
reliance on the high quality and reliable financial reporting and consequently reduce audit
report lag. Therefore, the third hypothesis is developed.
Ha3: There is negative relationship between board expertise and audit report lag.
3.0 Research design
Sample covers in this study are among 288 companies listed at Bursa Malaysia
for three years from 2007 to 2009. The sample randomly selected from population and
covers approximately 35 percent from the total population of 806 companies. The
companies listed at Bursa Malaysia are selected for this study because they are governed
by the rules and regulations imposed by MCCG and Bursa Malaysia Listing
Requirements. The companies selected include consumer, industrial products, trading
and services, construction, infrastructure, hotel, property, technology and plantation.
Table 1 provides number of companies selected from each of the sector. The following
table, Table 2 shows variables used in this study and it measurements.

Table 1
Total number of companies and sample based on industry
Industry
Construction
Consumer
Hotel
Industrial
Infrastructure
Property
Plantation
Technology
Trading & services
TOTAL

Population
49
139
5
265
7
88
43
29
181

Sample of companies
19
53
2
88
3
31
16
12
64

Percent
7
18
1
30
1
11
6
4
22

806

288

100

Table 2
Variables Measurements
Variables

Definition

Measurement

Author

Dependent
ARL

Audit report Represents the number of days

lag
elapsing between the end of the fiscal
year of the company to the completion
of the audit for the current year for
each individual firm (the audit report
date)

Davies and Whittred

(1980), Givoly and
Palmon (1982),
Ashton et al. (1987),
Atiase et al. (1988),
Ashton et al. (1989),
Carslaw and Kaplan
(1991),
Bamber et al. (1993),
Jaggi andTsui (1999),
Ahmad and
Kamarudin (2003),
Afify (2009)

Independent
Boards
The proportion of non-executive
BDINDs
independence directors to total number of directors is
(board
represented
the number of non-executive directors
independence) by Non
on the board divided by the total
executive
number of directors on the board at the
directors
year-end.

BDMEET
(Board
diligence)

BDEXP
(Board
experience)

O'Sullivan (2000),
Salleh et al. (2006),
Buniamin et al. (2008),
Wan Abdullah et al.
(2008).

Board
meeting

Number of board meeting for the

financial year

Carcello et al. (2002),

Tauringana et al.
(2008)

Board
expertise

Number of multiple directorships by

non-executive directors to the total
number of non-executive directors

Carcello et al. (2002),

Ismail et al. (2008)

Table 2 continues.
Variable

Definition

Measurement

Author

SIZE

Company
size

Natural log of year end total assets

Carslaw and Kaplan

(1991), Ng and Tai
(1994), Imam et al.
(2001), Knechel and
Payne (2006), OwusuAnsah and Leventis
(2006), Al-Ajmi (2008),
Che-Ahmad and
Abidin. (2008)

AUDIT
TYPE

Type of audit Dummy variable, 1 if auditor is one of Ng and Tai (1994),

firm
the former Big-4 audit firms, 0 Imam et al. (2001),
otherwise
Ahmad and Kamarudin
(2003), Leventis et al.
(2005)

PROF

Profitability

Control

PROF = Return on asset, measured by Jaggi andTsui (1999),

net income divided with total assets
Afify (2009)

4.0 Results
Descriptive statistic
Table 3
Descriptive Statistics for Audit Report Lag (N= 288)
Year

2007
2008
2009

ARL
ARL
ARL

2007- 2009

ARL

Minimum Maximum

Mean

Median

288
288
288

40.00
40.00
36.00

184.00
146.00
136.00

103.14
103.42
102.46

110.50
111.00
110.00

864

36.00

184.00

103.00

111.00

Notes:
ARL

= number of days between the end of the fiscal year to the date of completion of audit

As shown in Table 3, the mean score of audit report lag for the pooled sample is
103 days with a maximum and minimum day of 184 and 36 respectively. This indicates
that on average, the companies took 103 days to complete their audit report. Using the
pooled sample from period from period 2007 to 2009, the results indicate that the
companies did comply with Bursa Malaysia listing requirements and the Companies act
where they submit their report within six months except for one company took 184 days
to submit the report. It shows that companies are improving over the years on number of
days taken to complete the annual reports. The results of this study are somewhat similar
to Afify (2009) that found the maximum and mean score number of days to complete the
annual report was 115 days and 67 days respectively. The results also indicate that for the
maximum number of days that the companies took to complete the audit report has
reduced from 2007-2009 by 48 days.
In comparison to Che-Ahmad and Abidin (2008) and Ahmad and Kamarudin
(2003), the results of this study show that there is a relatively difference on the maximum
number of days with the current study. Che-Ahmad and Abidin (2008) found that 442
days while Ahmad and Kamarudin (2003) reveal 273 days on the maximum of days to
complete the annual report.

Table 4
Number of companies and audit report lag for 2007 2009
Audit report lag
ARL(within)

No. of
companies

No. of
companies

No. of
companies

Year / percentage

2007

Percent

2008

Percent

2009

Percent

1 month
2 months
3 months
4 months
5 months
6 months
More than

0
22
42
198
25
0
1

0.00
7.64
14.58
68.75
8.68
0.00
0.35

0
20
41
211
16
0
0

0.00
6.94
14.24
73.26
5.56
0.00
0.00

0
25
41
208
14
0
0

0.00
8.68
14.24
72.22
4.86
0.00
0.00

Total

288

100

288

100

288

100

Table 4 shows that for the three year period, no companies have completed and
submitted their annual report within a month. The results also show that for the three year
period, 41 to 42 companies have completed and submitted their annual report within 3
months. Other than that, the results shows that most companies reports way ahead the
date stipulated by Chapter 9 (9.23a) of Bursa Malaysia Listing Requirement that the
annual report shall be issued and submitted within a period not exceeding 6 months from
the financial year end of the company. Such results indicated that the companies are
concerned and realised that audited reports are useful for users decision-making. The
results support the notion that excessive delay in publishing financial statements would
increase uncertainty in relation to investment decisions (Ashton et al. 1987; Ahmad and
Kamarudin, 2003).

10

Table 5
Descriptive statistic for Board of Directors Characteristics and Control Variables
Variables

Std.
N Minimum Maximum Mean Median Deviation

Independent
BODIND
BODDIL
BODEXP

864
864
864

0.25
1.00
0.00

1.00
13.00
1.00

0.63
5.00
0.71

0.63
5.00
0.75

0.17
1.51
0.29

Control
SIZE -TOTASSET (RM BILLION)
TYPEAUD
ROA

864
864
864

9 -3
0
-1.88

36.64
1
11.059

0.79
.58
0.03

0.24
0.00
0.03

2.86
0.49
0.400

Notes:

BODIND
BODDIL
BODEXP
TOTASSET
TYPEAUD
PROFITABILITY

= proportion of the independent non-executive director to total number of

directors
= number of board meeting
= average number of outside directorships in other firm held by outside directors
= total assets that the companies have at the end of the financial year.
= 1 if audited by Big-4, 0 if otherwise
= net income divided with total assets

Results in Table 5 show that from the pooled sample, the mean score of the board
independence (BODIND) is 0.63 (63 percent). The results show that most companies
have more than half independent directors in their board of directors. Interestingly, there
are companies that have their board of directors represented entirely by independent
directors. Such results indicate that the listed companies in Malaysia comply with the
MCCG (2007) and Bursa Malaysia Listing requirement (2009) which requires
companies to have at least 2 independent directors or one third of the board of directors
are represented by independent directors. Only few companies did not comply with the
requirements stipulated by Bursa Malaysia. The results show that at minimum, 25 percent
of the board composition in the companies was represented by independent directors
which are less than one third.
Table 5 also shows that the average number board meetings (BODDIL) held was
5. The results also show that on average 71 percent of independent directors have
interlocking directorships where the independent directors also hold directorships in other
companies. The results indicates that the management of the companies hold the belief
that independent directors who hold directorships in other companies could enhance the
companies performance by providing vast experiences and skills.

11

Correlation matrix analysis

Table 6 provides the results on the normality test. The results show a nonsignificant value (0.333) which is more than 0.05, indicating data normality. Based on
Kolmogorov-Smirnov and Shapiro Wilk tests, this study concludes that audit report lag is
normally distributed.
Table 6
Normality Test for Audit Report Lag

NARL

Statistic
0.034

Kolmogorov-Smirnova
df
Sig.
864
0.021

Shapiro-Wilk
Statistic
df
0.998
864

Sig.
0.333

a. Lilliefors Significance Correction

The Pearson product moment correlation was used to determine the strength and
direction of the relationship between the independent variables and dependent variable.
Table 7 presents the results of the correlation matrix analysis. The results show no
correlation problem among the variables since the value is less than 0.5. The variance
inflation factor (VIF) indicates all variables have a value below two which is within the
acceptable range of 10(M. Yasin et al. 2009)

12

Table 7
Correlation Matrix Table
ARL
ARL

BODDIL

BODIND

BODEXP

Log_Asset

TYPEAUD

ROA

BODDIL

0.036

BODIND

-0.083*

0.172**

BODEXP

-0.097**

-0.023

0.065

LOG_ASSET

-0.170**

.0.178**

0.156**

0.128**

TYPEAUD

-0.170**

0.000

0.005

0.104**

0.195**

ROA

-0.076*

0.013

0.016

-0.039

-0.021

0.006

**Correlation is significant at the 0.01 level (2-tailed).* Correlation is significant at the 0.05 level (2-tailed).

13

Notes:
BODIND

= proportion of the independent non-executive director to total number of

directors

BODDIL

= number of board meeting

BODEXP

= average number of outside directorships in other firm held by independent directors

LOG_ASSET

= natural log of total assets (in billions of ringgit Malaysia)

TYPEAUD

= 1 if audited by Big-4, 0 if otherwise

ROA

= net income divided with total assets

Table 7 shows that board diligence (BODDIL) has no correlation which is

expected in this study. This study expects that there is negative relationship between audit
report lag and the number of board meeting. The correlation results show that there is
positive correlation between the board diligence with audit report lag. On the other hand,
there are significant negative correlation between audit report lag, board independence
(BODIND) and board expertise (BODEXP)
Fixed Panel Regression
This section presents the results of the fixed panel regression using Eviews. The
panel data analysis is an increasingly popular form of longitudinal data analysis among
social and behavioral science researchers (Hsiao, 2003). A panel is a cross-section or
group of people who are surveyed periodically over a given time period. In this study, the
group is the listed companies selected and the time is the duration of the data collected,
which is the three year period of 2007 until 2009. Since the data is bound to be
heterogeneity, the panel data technique could take such heterogeneity explicitly into
account by allowing individual specific variables (Gujarati, 2003). Normal regression
does not adjust firms specific effect which would lead to variables being omitted and
mis-specified the model (Fraser et al. 2005). Fixed effect model could overcome such
problem by adjusting the effects through firms specific intercept by capturing
immeasurable firms specific characteristics (Fraser et al. 2005). Panel data provides
more informative of data, variability and efficiency. Under the panel data, the model is
generated as follows:
ARL =

0 + 1BDINDs+ 2BDMEET+ 3BDEXP

5AUDTYPE+ 6PROF

+ 4SIZE+

+ it

14

Table 8
Fixed Panel Regression Result

Variable

Coefficient

Prob.

BODIND
BODDIL
BODEXP
LOG_ASSET
ROA
TYPEAUD
C
N

-0.025864
-0.005616
-0.002881
-0.129782
-0.002146
0.002535
5.786734
864

0.288
0.001*
0.205
0.012*
0.264
0.294
0.000

Adjusted R-squared
F-statistic
Prob(F-statistic)

0.802562
12.811
0.000

Notes:
BODIND
BODDIL
BODEXP

=
=
=

LOG_ASSET
TYPEAUD
ROA
Adjusted R2
F stat

=
=
=
=
=

proportion of the non-executive director to total number of directors

number of board meeting
average number of outside directorships in other firm held by
outside directors
natural log of total assets (in billions of ringgit Malaysia)
1 if audited by Big-4, 0 if otherwise
net income divided with total assets
adjusted R2 coefficient determination
indicate how much variation is explained by the regression
equation.

*significant at 1%.

Table 8 shows that board diligence (BODDIL) is significant at 1% level. One of

the control variables, company size is also significant at 1% level. Other variables, board
independence, board expertise, profitability and type of auditor do not have significant
association with audit report lag.
5.0 Discussion
Three hypotheses were developed in this study. The first hypothesis provides that
there is a negative relationship between board independence and audit report lag.
However, this study could not provide any evidence on that association. As a result,
hypothesis 1 is rejected. This result is consistent with Hsu and Wu (2010). They found no
association between board independence and corporate failure among companies listed at
London Stock Exchange. Buniamin et al. (2008), also found same result that board
independence could not play an effective monitoring role in influencing financial
reporting quality and thus not effective in resolving the agency problem.

15

However, Afify (2009) found that board independence could reduce audit report
lag. This contradicts with the current study. Similarly, Che Haat et al. (2008) found that
internal governance mechanisms could lead to significant higher firm performance and
Wan Abdullah et al. (2008) found board independence as one of the important factors for
a company to perform effectively.
The results show that number of board meetings provides significant association
with audit report lag. This indicate that the more number of board meetings held would
more likely to reduce the audit report lag of the companies. Thus, the second hypothesis
is accepted. The results of this study are consistent to Carcello et al. (2002) who found a
relationship between board meeting and the audit fees. Higher number of meetings of the
board of directors would likely to address problems and of consequence, would instigate
the approval of releasing of annual report. Tauringana et al. (2008) found that there is a
relationship between number of board meetings held and timeliness of annual reports for
companies listed on the Nairobi Stock Exchange (NSE) in Kenya. The results indicate
that companies which hold meetings more frequently tend to publish their annual reports
earlier, an evidence of effective corporate governance mechanism.
Then, the last characteristic on board of directors is on board expertise. The
hypothesis states that there is a negative relationship between board expertise and audit
report lag. The results of this study show that there is no association between the numbers
of independent directorship with audit report lag. Therefore, hypothesis three is rejected.
The results of this study are consistent with Carcello et al. (2002) who found that there is
no relationship between that variable for small sample of companies on audit fees.
Similarly, Che Haat et al. (2008) also found no relationship on the directorship of the
directors in relation to the performance of the company. The results are consistent with
Abdul Rahman and Salim (2010) that clarify too many directorships may impair the level
of independence among the directors and consequently, affect the effectiveness in
performing their roles and responsibilities. This is consistent with resource dependency
theory that recognises the importance addressing the updating of sources of power and
dependence and cataloging the new set of available tactics for managing dependence.
6.0 Conclusion
This study provides evidence that audit report lag has a significant negative
relationship with the number of the board meeting (BODDIL). The results show that as
the number of meeting increased, the time taken to produce annual report also reduced.
The findings of this study support the notion by Dalton and Daily (1999) where the
monitoring role of the board is important in overseeing the process of accounting,
financial reporting, auditing and also on disclosure of information to the shareholders,
potential investors and other relevant stakeholders for evaluation on company
performance. When more meetings are conducted, the board may discharge their duty
properly on monitoring function of the company. Of consequence, increase the quality on
reporting of the company, particularly timeliness.
The results of this study show that board independence is not an influencing
factor in reducing audit report lag. The results indicate that board independence does not
necessarily assist timely corporate reporting. The key point is that the board of directors
need to fulfill their role effectively and efficiently regardless whether they are
16

independent directors or non-independent directors. This study could not provide

evidence that companies would have better performance even though they have been
comply with the rules provided by Bursa Malaysia Listing requirements with regards to
board composition. Abdul Rahman and Salim, (2010) stated that the company has one
third of independence director on the board are just in form rather than substance. The
authors also noted that among the directors in listed companies also view that the
independence directors must be independence in mind whereby they have to understand
the company background, strength and weakness to ensure being successfully in carrying
their role for the benefit of company.
The results also show that board expertise could not significantly influence the
reduction of audit report lag because of the different skills of the board expertise which is
useful in one company but may not be useful in another company. This study proposes
that the companies should have stricter rule and criteria selection of their directors to
ensure their monitoring role can be effectively discharge.
This study contributes to the corporate governance and audit literature by
examining the link between mechanisms of corporate governance; board of directors and
the audit report lag. The findings of the study would have policy implications for MCCG.
This study provides supporting evidence on whether the development of corporate
governance could significantly increase the timeliness of annual reports among
companies in Malaysia. This study could assist Malaysian Institute of Corporate
Governance (MICG) to provide best practice in order to enhance corporate governance
mechanisms.
The findings of the study could also assist external auditors in evaluating the
effectiveness of the board of directors in their audit planning. Such assistance would
assist the external auditors in identifying the best time to be allocated for their audit
engagements in terms of effort such as whether to reduce or increase effort and the
amount of fees to be charged.
This study is not without limitations. First, this study employs only four variables
that are related to corporate governance. This study did not include other variables such
as CEO duality and characteristics on audit committee in assuring audit report lag. It is
also important to examine other factors such as government policy or political issue that
might affect audit report lag. Further, McGee (2007) noted that the influence of
timeliness might be attributed by culture, political and economic system of the country.
Secondly, the findings of this study would be more accurate if the study covers all
population. This would provide great generalization on the Malaysian listed companies
on audit report lag and corporate governance characteristics. Further, a ten year data
would be more interesting as it can show the trend on audit report lag. For the future
research avenues, it would be interesting to examine the link between corporate
governance mechanisms to share price in relation to audit report lag. Other than that, it
also can be examined on which parties are liable for the delay of annual report, either on
the hands of the preparers or auditors. Besides looking at the timeliness of annual report,
it is also important to examine on the other reports such as interim and quarterly report
since these report are important in assessing company performance.

17

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