Audit delay: Evidence from listed joint stock companies in Saudi Arabia

Saad A. Almosa

Mohammad Alabbas

King Khalid University, Abha, Saudi Arabia

Abstract:

Timelines of corporate annual financial reports is considered to be a critical and important factor affecting the usefulness of information made available to external users. As Leventis et al puts it “Timeliness of financial statements is the focus of an increasing amount of attention by accounting researchers and regulatory bodies” Leventis et al (2005) p. 46. The length of the audit process highly affects the timelines of corporate financial reporting. Hence, many accounting researchers have studied the phenomenon of audit delay in different countries. Audit delay is defined here as the length of time from a company’s fiscal year end to the date of the auditor report. Further theoretical and empirical research in different countries is necessary for a better understanding of the determinants of audit delay. This paper aims to investigate the determinants of audit delay for listed joint stock companies in Saudi Arabia. Annual reports for the years 2003, 2004, 2005 and 2006 are used. Variables that describe companies, their auditors, and the various types of interaction between these parties were analyzed in this study. A multiple regression analysis was applied modeling audit delay as a function of many explanatory variables. Some of these are companies’ attributes. These include corporate size (proxied by book value of total assets, the riyal value of sales revenue, and the size of inventory), company’s profitability and industry sector. The others are auditor’s attributes. These include type of audit firm (affiliation with an international firm), the change of auditor and the type of audit opinion issued. Possible explanations for the findings of the study along with its limitations and implications are highlighted.

Key words: audit delay, auditor report, audit fees, auditor change, Saudi audit market, fiscal year end, audit report date, big 4

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INTRODUCTION:

Timelines of corporate annual financial reports is considered to be a critical and important factor affecting the usefulness of information made available to external users. As Leventis et al puts it “Timeliness of financial statements is the focus of an increasing amount of attention by accounting researchers and regulatory bodies” Leventis et al (2005) p. 46. The length of the audit process highly affects the timelines of corporate financial reporting. Hence, many accounting researchers have studied the phenomenon of audit delay in different countries. Audit delay is defined here as the length of time from a company’s fiscal year end to the date of the auditor report. Further theoretical and empirical research in different countries is necessary for a better understanding of the determinants of audit delay. This paper aims to investigate the determinants of audit delay for listed joint stock companies in Saudi Arabia. Annual reports for the years 2003, 2004, 2005 and 2006 are used. Variables that describe companies, their auditors, and the various types of interaction between these parties were analyzed in this study. A multiple regression analysis was applied modeling audit delay as a function of many explanatory variables. Some of these are companies’ attributes. These include corporate size (proxied by book value of total assets, the riyal value of sales revenue, and the size of inventory), company’s profitability and industry sector. The others are auditor’s attributes. These include type of audit firm (affiliation with an international firm), the change of auditor and the type of audit opinion issued. Possible explanations for the findings of the study along with its limitations and implications are highlighted.

Joint stock companies listed on the stock market in Saudi Arabia fall under the regulation of two separate bodies with regard to audited financial reports. First, the Companies Act administered by the Ministry of Commerce states that audited annual financial statements should be made available to the public within 90 days from the financial year end. Second, the Capital Market Authority CMA in its listing requirements and regulations states that annual audited financial statements along with other information especially the auditor report should be filed with the CMA within 90 days of the end of the fiscal year of the joint stock company. The audit market in Saudi Arabia comprises numerous firms on the supply side. These include local firms affiliated with one of the international Big 4 audit firms. The rest are local firms formed by a single or joint auditors in the form of a partnership. There are few local firms which are affiliated or linked to international firms other than the Big 4.

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PREVIOUS RESEARCH:

The fact that the fiscal year end (FYE) and the auditor report date (ARD) have never been synchronized events has very significant implications for financial reporting and external auditing. Leventis et al (2005) refer to this phenomenon as the “inevitable gap” between the end of the fiscal year and the publication of the audited financial statements, and they proclaim that “minimizing that gap would enhance market efficiency.” This issue has been researched widely in the literature under different headings. These include the timeliness of financial reports, audit delay and audit report lag, to name a few.

Many studies have investigated the issue in different countries, in different domains, and for different purposes. These studies could be classified into two groups. The first includes studies which tackled the issue of the relationship between the timing of annual earnings announcement and some companies’ characteristics and its effects on shares prices on stock markets. These studies aimed, inter alia, to measure market reaction to earnings announcements, and they pointed to the possible deterioration in the information content of annual reports as the reporting delay increases. These studies did not pay much attention to the characteristics of the auditor and the audit process. Examples of these studies include, Dyer and McHugh (1975), Courtis (1976), Davies and Whittred (1980), Whittred (1980), Givoly and Palmon (1982), Whittred and Zimmer (1984), Haw, Qi and Wu (2000), and Owusu-Ansah, S. (2000).

The second group consists of studies which concentrated on the audit delay aspect, analyzing the characteristics of the auditor, the auditee, and the audit process and their effects on the timing of the audit report date. Givoy and Palmon (1982) assert that the length of the audit process is the single most important determinant of the timeliness of the earnings announcement. Examples of such studies include, Ashton, Willingham and Elliot (1987), Ashton, Graul and Newton (1989), Carslaw and Caplan (1991),

Dyer and McHugh (1975) in their study of Australian companies for the years between 1965 and 1971 accounted for an increase in the audit delay. Their Model aimed to measure the relation between some corporate attributes and audit delay. A sample of 120 companies selected randomly from companies listed on the Sydney Stock Exchange (SSE). They collected needed data for their analysis from published annual reports of firms included in their sample and questionnaire responses from auditors and controllers. They found some negative relation between the audit delay and the size of the company. Also they reported a finding of significant negative relationship between audit delay and company’s profitability.

Courtis (1976) studied the issue of audit delay in New Zealand using the published annual reports for 204 listed companies for the year 1974. Mann-Whitney Z and U tests were used in this study. He concluded that the audit delay for the study sample was negatively related to the company size measured by total assets and

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profitability. Moreover, larger auditing firms took less time to finish the audit compared to smaller auditing firms.

Givoly and Palmon (1982), introduced this kind of research to the US domain with a larger sample. Using the published annual reports of 210 companies listed in the New York Stock Exchange (NYSE) over a period of 15 years between 1960 and 1974, they reported that there was a decrease in audit report delay over that period. They found that companies’ financial reports that have bad news tend to be associated with more audit report delay compared to those who have good news. Finally they concluded that “the average delay of an individual company appears to be more closely related to industry patterns rather than to the company’s attributes such as size or complexity of operations.”

Whittred (1980) investigated the effect of qualified audit reports on the timelines of Australian annual reports over a ten year period between 1965 and 1974. The results of his study indicated that “first time” qualifications delay the release of companies’ preliminary profit and annual reports. Also he found that the more serious the qualification, the greater the delay will be.

Ng and Tai (1994) conducted a first-time study in Hong Kong to examine the determinants of audit delay on a sample of 292 and 260 listed companies for the year 1991 and 1990 respectively. They used multiple regression analysis modeling audit delay as a function of ten explanatory variables. Their results showed that the log of turnover and the degree of diversification are significantly related to audit delay in both years, while change in EPS and extraordinary items were found to be significant only on one of the two years.

K Ahmed (2003) carried out a study of the timeliness of corporate annual reporting in Bangladesh, India, and Pakistan. He used a large sample of 558 annual reports for the year 1998. The reported mean of audit delay of his study for that sample of companies in these three developing countries were 162, 92, and 145 days respectively. He also, concluded utilizing a multivariate regression analysis that financial year end date is a significant determinant of audit delay in each country. Profitability and corporate size are significant determinants only in Pakistan.

Leventis et al (2005) studied the issue of audit delay, or audit report lag, as they refer to it using a sample of 171 companies listed on the Athens Stock Exchange. They took advantage of having access to proprietary data on audit fees, audit timing and company ownership. They found a statistically significant association between audit delay and several explanatory variables. These include type of auditor, audit fees, number of remarks in the audit report, the presence of extraordinary items, and an expression of uncertainty in the audit report.

In the Saudi frame, Y. AlJabr (2007) empirically analyzed the relationship between the timing of financial information announcement and some attributes of joint

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stock companies during the period 2001 to 2005. He concluded that firms included in his sample started releasing financial announcements more quickly since the introduction of the CMA. The mean for 2005, the first full calendar financial year after the CMA, was 28 days only. Also, he found that, big companies and companies with good news were releasing their financial information to the public following the end of their fiscal year more quickly than their counterparts. Firm's debt leverage was found to be negatively associated with the timing of information release. Also, they reported some differences across the different sectors of the joint stock companies included in their study.

METHODOLOGY:

SAMPLE:As of the end of December 2006, there were 91 joint stock companies listed on

the Saudi Stock Market. These companies comprised the sample for this empirical study. They were classified into eight groups, commercial banks (n= 10), manufacturing firms (n=35), cement companies (n= 8), service companies (26), electricity company (n=1), telecommunication companies (n=2), insurance companies (n=1), and agricultural companies (n=9). The annual reports for these companies, including the audited financial statements and the auditor report, for the years 2006, 2005, 2004 and 2003 were obtained from the web site of the Saudi Stock Market (Tadawul). At the end of the three previous years (2005, 2004, 2003) the numbers of joint stock listed companies were (90, 86, 76) respectively. Following the rapid growth of the Saudi stock market and the boost in the SSE many limited liability companies switched into the corporate form and became listed on the stock market leading to the increase in the number of listed companies during the years of the study.

The MODEL:

Following Bamber et al (1993), audit delay in this study was defined as the length of time from a company’s fiscal year end to the date of the auditor report. The model developed in this study hypothesized that audit delay is a function of company’s attributes and auditor-related variables

There are several studies that found a significant association between corporate attributes and the audit delay in both developed and developing countries. These studies considered different measures to control for corporate attributes.

Corporate-related attributes and audit delay relationship:

Auditee Size:The size of the company is the most popular factor and measured by different

proxies. Total revenues were found to be negatively associated with audit delay by Ashton, et al, (1987) and Johnson et al (2002). Total assets were found to be negatively related with audit delay by Leventis et al (2005). Total sales were found by Hossain and Taylor (1998) to be related to audit delay. Log of total assets was found by Bamber et al (1993) and Abdulla (1996) to be associated with audit delay.

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To make this study more comparable with previous studies in the Gulf area, this study utilized the log of assets to measure company size. Accordingly, the first hypothesis of this study will be stated as the following:

H1: The audits of the accounts of firms with greater assets are likely to be completed sooner than those of firms with fewer assets.

The argument behind this is that the audit for larger companies may be completed earlier than smaller ones because larger companies may have stronger internal controls, which affect the audit work due to the auditor expected tendency to rely more on internal controls and reduce the extent of substantive tests. In addition, it is argued that management of larger companies hypothesized to have incentives to reduce both audit delay and reported delay due to the greater external pressure to report earlier (Dyer and McHugh, 1975).

Profitability:

The second corporate-related variable is the profitability. This variable has been discussed by some researchers as a factor related to bad or good news (Abdulla, 1996; Bamber et al, 1993), and found it to be positively related with audit delay (Dyer and McHugh, 1975; Carslaw and Kaplan, 1991; Bamber et al, 1993). While some researchers found a negative relation (Abdulla, 1996). The expected reason for such differences is due to the proxy measures of the variables. Some researchers used dummy variables ( 0 for loss and 1 for profit), while others used disclosed earnings as a measure.

In this study ‘profitability’ is measured using both dummy variables and disclosed earnings. Companies reporting a profit for the period are expected to minimize audit delay. Thus the following specific hypothesis has been tested regarding profitability:

H2: The audits of the accounts of firms with positive earnings during the audited period are likely to be completed sooner than those of firms with losses during the audited period.

There are some reasons to explain why this variable should be negatively associated with the audit delay. First, profitability is considered as an indication of good or bad news resulting from the year’s operations (Ashton et al, 1987). If the company experiences losses, management might wish to delay corporate annual report in order to avoid the effect of its ‘bad news’. The second one is that a company with a loss may request the auditor to schedule the start of the audit later than usual. While, on the other hand companies with ‘good news’ relating to their profitability are expected to attempt to invite the auditor to complete the audit engagement as quickly as possible to release their audited financial statements (Hossain and Taylor, 1998).

Auditee Sector:

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The third corporate-related factor is the client’s main sector which represent its main operations. Prior research in audit delay tested for client industry. Some researchers used dichotomous classification; financial versus non-financial sector, were financial service companies were coded 1 and others were coded 0. Other studies used dummy variable to test for each sector. A negative relation has been found if the client is a bank (Ashton et al, 1987; Bamber et al, 1993; Ahmad and Kamaudin, 2003).

In this study the dichotomous classification, financial versus non-financial sector will be utilized to test for the effect of the industry factor, since the audit delay is expected to be shorter for financial institutions. This is because the financial services companies seem to have little or no inventory. The lower the proportion of inventory in relation to other types of assets, the lower the audit delay is expected to be. Accordingly the third hypothesis is:

H3: The audits of the accounts of financial firms are likely to be completed sooner than those of non-financial firms.

Auditor’s related variables and audit delay relationship:

There are several studies that have examined the relationship between audit delay and some variables related to the auditor. The characteristics of the audit firm size (international auditing firm) could be considered as the most frequently tested variable. By dichotomous classification; big international firms versus non-big local firm. This factor has been found to be significantly and negatively related with audit delay by Imam et al (2001), Raja and Kamarudin (2003), and Leventis et al (2005).

Auditor Size:Following prior literature, this study will test for the relationship between large

multinational, and more-reputable auditing firms and audit delay. It is expected that these firms might take less time to conduct audit work because they may have more resources, use more qualified audit staff. Also, the internationally affiliated audit firms would be more efficient because they employ superior audit technology (Leventis et al, 2005). Accordingly, the fourth hypothesis of the study is:

H4: The audit report delay of a company is shorter where the audit firm is a Saudi firm with a Big-4 international affiliation.

Audit opinion (unqualified versus others):Previous studies had suggested that the audit delay is an increasing function of the

presence and magnitude of remarks in the audit report. However, number of researchers considers audit opinion to test for this relation and found it to be significant (Ashton et al, 1987; Bamber et al, 1993; and Raja and Camarudin, 2003). Leventis et al (2005)

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considered the number of remarks in the audit report and found a positive relationship with a statistical significance. Following this line of research this study considered the auditor opinion effects on audit report delay. A dummy variable was constructed assigning 1 to the observation which represent qualified, disclaimer or adverse opinion, and assigning 0 to clean or remarks observation. Table present a summary of the types of auditor opinion relating to the years of the study and its observation.

Table 1 Type of auditor opinion for the study observationsYear

Type of Opinion2006 2005 2004 2003 Total

Unqualified 77 71 71 62 281Remarks 11 15 6 9 41Qualified 2 2 9 7 20Adverse 1 0 0 0 1Disclaimer 0 0 1 1 2Total 91 88 87 79 345

Hence, the appropriate hypothesis for this variable will be:

H5: The audit of the accounts of firms with qualified, adverse or disclaimer auditor opinion are likely to be delayed more than those of firms with unqualified or with remarks auditor opinion.

Regression Model:The hypotheses of the study were tested using a linear regression model, in

which audit report delay was the dependent variable as follows:

Audit report delayi = β0 + β1 + β2 + β3 + β4 + β5 + ε

Audit report delayi = β0 + β1 (Auditee size) + β2 (Profitability) + β3 (Auditee sector) + β4

(Auditor size) + β5 (Auditor opinion) + ε

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EMPIRICAL RESULTS AND ANALYSIS

Descriptive statistics

Table no. 2 provides basic descriptive statistics for the sample as whole. This table shows that the mean of the audit report delay was 46 days, which suggests that Saudi audit firms are in the normal class in reporting when compared to audit firms in developed capital markets (see Ashton et al,1987, Bamber et al., 1993, Johnson et al 2002). This result of audit delay indicates that Saudi companies considerably adhere to the Saudi Companies Law which requires companies to publish their audited annual reports within 90 days following the financial year-end. However some companies failed to publish their audited reports within this time frame (maximum audit delay was176 days).

Other descriptive results indicate that 16% of the study sample gets a qualified opinion, 6% published their annual report out of the calendar year ( off–peak period), 21% of companies have been audited by two auditors, 55% have been audited by one of the big four audit companies. The results indicate that 33% of the study sample have switched auditors during the period of the study, this result might be driven by the ministerial decision no. 903, which requires Saudi corporations to switch their auditors after three years of engagement.

Table 2 : Descriptive analysis for entire sample (n=352)Mean* Median S. Deviation* Maximum* Minimum*

ASSETS 11358585.685 1264493 27914885.906 166588820 41059REVENUES 2426326.359 414024 9127534.132 86237862 662

INCOME 670663.599 75457 2260797.668 20293942 -1039915INVENTORY 270168.884 37582.5 1215447.690 13658245 00

DELAY 46.45 45 24.89 176 4LOSS 12% - - - -BIG4 54% - - - -

JOINTAUD 21% - - - -OPINION 16% - - - -NONFIN 12% - - - -

YEAREND 6% - - - -AUDITSWC 33% - - - -

DELAY = number of days form companies' accounting year-end and date of audit report. OPINION = (1 if qualified, Disclaimer or Adverse, 0 if clean or except for) YEAREND = (1 if company's year end out calendar year, 0 otherwise) JOINTAUD = (1 if two auditors, 0 otherwise) BIG4 = ( 1 if auditor is one of Big 4, 0 otherwise) LOSS = (1 if company get losses, 0 otherwise) NONFIN = (1 if company is financial one, 0 otherwise) * In thousands

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Table 3 descriptive statistics for samples of sectors Financial* Communication* Agricultural* Electric* Services* Cements* Industrial*

No. Observations

42 6 36 4 98 32 134

ASSETS* 54078280.5 34840476.3 430834.6 115861647.3 2022252.4 1912901.1 5817472.5REVENUES* 2977210.3 23364453.7 153669.6 18470603.0 419832.6 718354.1 3164434.2

INCOME* 1888660.7 7255810.3 42148.05 3869946.5 78016.3 394497.9 645353.03INVENTORY* 00 134735.2 19697.6 1439755.0 56856.6 133608.5 503332.1

DELAY 23.12 44.16 51.08 52.00 55.66 34.59 48.54LOSS 00% 0% 17% 00% 20% 0% 10%BIG4 100% 66% 19% 00% 18% 19% 18%

JOINTAUD 100% 18% 00% 00% 11% .0% 15%OPINION 0% .00% 33% 00% 18% .00% 19%

YEAREND 00% 00% 00% 00% .00% .00% .00%AUDITSWC 17.5% 25% 37% 33% 36.2% 32% 36.9%

DELAY = number of days form companies' accounting year-end and date of audit report. OPINION = (1 if qualified, Disclaimer or Adverse, 0 if clean or except for) YEAREND = (1 if company's year end out calendar year, 0 otherwise) JOINTAUD = (1 if two auditors, 0 otherwise) BIG4 = ( 1 if auditor is one of Big 4, 0 otherwise) LOSS = (1 if company get losses, 0 otherwise) * In thousands

Table no. 3 provides basic descriptive statistics for seven separate partitions of the sample based on their appropriate sectors as classified by the Saudi stock market. Comparison between these sample shows that the audit delay varies based on sectors, the shorter audit delay was found in the financial sector (commercial banks and insurance companies), whiel the longest audit delay was found in the services sector.

Table 4 descriptive statistics for sample of years for all variables 2003 2004 2005 2006

No. Observations

87 86 88 91

ASSETS* 9964340 10050665.941 11418075.738 13870073.022REVENUES* 2136638.439 2160921.012 2505647.131 2869881.506

INCOME* 534385.494 538464.488 749857.477 849303.791INVENTORY* 240082.736 242859.012 271398.102 323553.198

DELAY 49.73 49.69 44.40 42.23LOSS 12% 12% .12% .13%BIG4 50.57% 51.16% 56.80% 58.24%

JOINTAUD 20.6% 22% .19.3% .21.9%OPINION 9% 18% 19% 15.38%

AUDITSWC 33% 30% 29% 39% DELAY = number of days form companies' accounting year-end and date of audit report. OPINION = (1 if qualified, Disclaimer or Adverse, 0 if clean or except for) YEAREND = (1 if company's year end out calendar year, 0 otherwise) JOINTAUD = (1 if two auditors, 0 otherwise) BIG4 = ( 1 if auditor is one of Big 4, 0 otherwise) LOSS = (1 if company get losses, 0 otherwise) * In thousands

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Table no. 4 provides basic descriptive statistics for four separate partitions of the sample based on the years 2003, 2004, 2005 and 2006. Comparison between these samples shows that the audit delay was getting shorter form year to year; where it was 49.73 days on the average in 2003 it became 42.23 days in 2006. This picture might be more obvious when the samples are compared using standard deviation, maximum and minimum indictors which are presented in table no. 5 below. It shows that the standard deviation was getting shorter form year to year, which means that more audit works are going to be finished earlier form year to year. In addition, maximum figures supports this conclusion, where as maximum report delay was 176 in 2003 it became 94 in 2006 which is very close to the number of days a corporation has to publish its audited annual report following the requirements of the Saudi Companies Law (90 days). This result might be driven by the establishment of Capital Market Authority (CMA) in Saudi Arabia (dated to 2003). The CMA imposes on a joint stock company listed on the market to publish its audited annual report within 90 days or its stock will face restrictions on trading.

Table 5 descriptive statistics for audit delay for samples of years 2003 2004 2005 2006

No. observations 87 86 88 91Mean 49.73 49.69 44.40 42.23

S.Deviation 29.40 29.57 21.08 17.09Maximum 176 176 4 12Minimum 10 10 116 94

Model specification

If the regression model used is misspecified, i.e. the "true" functional form differs from the specified form, then it could be possible for cross-sectional differences among the independent variables to confound one or more of theses variables. A problem that confounds the results is the multicollinearity which occurs when the explanatory variables are very highly correlated with each other, so one variable can be a function of the other (Doughetry, 1992:157). There are different measures for calculating the coefficient of correlation. If the coefficient of correlation between the values of two variables is greater than 0.80 or 0.90 then multicollinearity is a serious problem (Judge et al. 1988: 868). Table no. 6 provides correlation coefficients between variables used in this study. It is clear the there is very high correlations between the variables of revenues and a number of other variables. Therefore, the variable of assets was used as a proxy for the auditee size instead of revenues.

Other two particular problems researchers seeking to build a cross-sectional model for audit delay analysis have been how to cope with outliers and non-normality of the data set. In this study it was clear that there is a significant skewness in the data set used and therefore theses will be considered here. Two specific models are found in the literature to mitigate for theses problems. These are discussed below.

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The first model, most popular in previous studies, is to regress actual audit delay on the number of explanatory variables. Although this usually results in models which satisfy the underlying assumptions of OLS regression it does not provide a solution for outliers and non-normality.

The second model tested by Ng and Tai (1994). This model is designed to overcome the skewness problem by using logarithmic transformation of the dependent variable, audit delay, and nine variables. Instead of the absolute figures of the assets, revenues, inventory and income, the natural logarithm was used instead.

Recently, Kane and Meade (1998) sought to demonstrate the superiority of using rank transformation to cope with difficulties presented by outliers and non-normality. Rank transformation entails replacing each observation with its respective rank within the sample. These ranks are the divided by N+1 (where N is the number of observations in the sample). This scaled transformation will result in uniform distribution between zero and one. In the audit fees context, Ireland and Lenoox (2002) followed this approach replacing all the non-dummy variables with their rank transformation.

In this study, we tested all three approaches and the compare the results in terms of their goodness of fit (R2) and how successfully they satisfy the regression diagnostics. Table no. 6 below presents the results using the three model and it clear that the third one (using rank transformation) presents the best fit. Accordingly the results of this study will be discussed based on this model.

Table 6 correlation matrix NONFINANOPINIONYEARENDJOINTAUDLOSSAUDITSWCBIG4INCOMEINVENTORASSETSREVENUESDELAY

1.000DELAY.

1.000.064REVENUES..241

1.000.657-.140ASSETS..000.009

1.000.579.902.114INVENTOR..000.000.032

1.000.744.708.942-.027INCOME..000.000.000.612

1.000.215.074.248.163-.077BIG4..000.167.000.003.149

1.000-.046-.047-.010-.101-.022.110AUDITSWC..433.427.866.084.717.060

1.000-.087.075.117.059.100.085-.256LOSS..136.158.028.266.061.120.000

1.000.079-.016.432.247-.033.410.108-.246JOINTAUD..141.788.000.000.537.000.050.000

1.000.040.057-.098.237-.065-.031-.095-.053.082YEAREND1..459.285.096.000.220.557.074.331.126

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1.000.147-.184-.210-.006-.123-.124-.081-.139-.107.134OPINION..006.001.000.924.021.020.129.009.051.012

1.000-.158-.095.606.106-.133.320.199-.081.568.027-.347NONFINAN..003.075.000.046.023.000.000.130.000.617.000

DELAY = number of days form companies' accounting year-end and date of audit report. OPINION = (1 if qualified, Disclaimer or Adverse, 0 if clean or except for) YEAREND = (1 if company's year end out calendar year, 0 otherwise) JOINTAUD = (1 if two auditors, 0 otherwise) BIG4 = ( 1 if auditor is one of Big 4, 0 otherwise) LOSS = (1 if company get losses, 0 otherwise)

Non- transformed model Log-transformed model Rank-transformed model Beta T-test P-

ValueBeta T-test P-

ValueBeta T-test P-

ValueConstant 55.005 13.624 0.000 2.593 6.230 0.000 0.507 8.671 0.000ASSETS 0.113 1.028 0.305 0.490 3.856 0.000 0.409 4.072 0.000

INVENTOR 0.115 1.171 0.243 -0.065 -0.671 0.503 0.112 1.537 0.126INCOME -0.045 -0.457 0.648 -0.402 -3.539 0.001 -0.391 -3.730 0.000

AUDITSWC 0.060 1.129 0.260 0.030 0.429 0.669 0.071 1.389 0.166BIG4 0.061 0.977 0.329 0.031 0.386 0.700 -0.008 -0.134 0.893LOSS -0.193 -3.547 0.000 -0.080 -1.248 0.213

JOINTAUD -0.040 -0.550 0.583 -0.072 -0.929 0.354 -0.117 -1.598 0.111YEAREND1 0.058 1.034 0.302 0.110 1.479 0.141 0.075 1.351 0.178

OPINION 0.083 1.492 0.137 -0.059 -0.767 0.444 0.056 1.002 0.317NONFINAN -0.393 -4.195 0.000

-0.043 -0.603 0.547-0.280 -2.919 0.004

R2 0.24 0.91 0.29F 9.09 2.109 11.69

DELAY ( number of days form companies' accounting year-end and date of audit report) is the dependent variable. OPINION = (1 if qualified, Disclaimer or Adverse, 0 if clean or except for) YEAREND = (1 if company's year end out calendar year, 0 otherwise) JOINTAUD = (1 if two auditors, 0 otherwise) BIG4 = ( 1 if auditor is one of Big 4, 0 otherwise) LOSS = (1 if company get losses, 0 otherwise)

Three out of the ten explanatory variables are significant. Those variables which are significant are total assets, income, financial sector.. The coefficients for all these three variables are in the predicted direction. Audit delay was positively associated with total assets (proxy of size), whilst negatively associated with income (as proxy of profitability), and financial-non-financial dummy variable (control for financial sector characteristics). This means that the audit delay increases as auditee size increase. On the other hand, a decrease in audit delay was observed with financial companies, and as companies gain profits.

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CONCLUSIONS:

The aim of this study has been to investigate the determinants of audit delay for firms publicly traded within the Saudi Stock Market. A sample of 91 joint stock companies listed in the Saudi Stock Market was chosen to carry out the empirical research of the study. Following Bamber et al (1993), audit delay was defined as the length of time from a company's fiscal year end to the date of the auditor report. The model developed in this study hypothesized that audit delay was a function of company's attributes and auditor-related variables. These variables included, the size of the company measured by gross assets, revenues and inventory, profitability of the company measured by net earnings and whither it made a profit or a loss during the specific year. Also, the sector of the firm in general and financial versus non-financial sector was among this kind of variables of the study. The auditor-related variables included the type of auditor carrying out the audit engagement, namely big 4 international firms versus local audit firms. Likewise, joint audit, and auditor switching and the type of audit opinion issued were included in this group of variables of the study. A regression model was built to carry out the empirical analysis of the study.

This study provided some empirical evidence relating to the audit report delay of companies listed in the Saudi Stock Market during a period of increased regulations and constraints over the listed companies in that market. In 2004 the CMA, Capital Market Authority, was introduced as the main governing body of the capital market and its listed joint stock firms in Saudi Arabia. This study supports the conclusion that audit report delay as defined in this study declined very significantly after the introduction of the CMA. Nowadays, the majority of joint stock firms publish their annual audited financial reports within the time limits of the CMA. Three out of the ten explanatory variables used in this study were found to be significant. Those variables which are significant are total assets, income, financial sector. The coefficients for all these three variables are in the predicted direction. Audit delay was positively associated with total assets (proxy of size), whilst negatively associated with income (as proxy of profitability), and financial-non-financial dummy variable (control for financial sector characteristics). This means that the audit delay increases as auditee size increase. On the other hand, a decrease in audit delay was observed with financial companies, and as companies gain profits.

Certain limitations of this study have to be recognized. First, the explanatory power of the regression model of this study could be improved by including other variables which are derived from data not publicly disclosed till now in Saudi Arabia. The audit fees of the associated audit engagements are an important example of this data. Likewise, access to internal information within the audit firms about the composition and qualification of the audit team for each engagement, the work load and risk factors for the auditor might provide explication for the determinants of audit delay within the

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companies studied in this empirical research. Secondly, incorporating corporate governance characteristics into the empirical analysis of this study might provide plausible explanations for the determinants of audit delay for joint stock companies listed on the Saudi Stock Exchange.

There are abundant opportunities for further research into issues raised in this study. These could be carried out through other research approaches or by obtaining more non-public domain data. Access to the audit fees of companies included in this study or more superiorly the cost of the audit hour could provide some more interesting and rewarding explanatory variables for the model of the study. This is maintained by the conclusion of the study carried out by Leventis et al (2005). Moreover, carrying out a similar study within a different group of firms in the Saudi economy, such as partnerships or limited liability companies and proprietorships which are not under the jurisdiction of the CMA could provide some interesting explanations for issues raised in this study.

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