Internal Auditing Practice in Governmetal Organizations

The Impact of Internal Audit Function Quality and Contribution on Audit Delays

Mina Pizzinia
Cox School of Business
Southern Methodist University
Dallas, TX [e-mail] Shu Lin
Craig School of Business
California State University, Fresno
Fresno, CA [e-mail] Mark Vargus
LeBow College of Business
Drexel University
Philadelphia, PA 19104-2875

Douglas Ziegenfuss
College of Business and Public Administration
Old Dominion University
Norfolk, VA 23529 [e-mail] November 28, 2010

We thank the Institute of Internal Auditors for access to the Global Auditing Information Network (GAIN) database. We thank Chris Hogan, Barry Brian, and seminar participants at the University of Tennessee for their helpful comments. a Corresponding author

The Impact of Internal Audit Function Quality and Contribution on Audit Delays

ABSTRACT

This study examines the role that the internal audit function (IAF) plays in the timeliness of financial reporting by investigating whether measures of IAF quality and the IAF’s contribution to the financial statement audit are associated with audit delay. Audit delay is the number of days between a firm’s fiscal year-end and the report date (Ashton et al. 1987). Pursuant to Section 409 of SOX, a 2002 SEC ruling shortened 10-K reporting deadlines for accelerated filers from 90 days to 60 days over a period of three years (U.S. Congress 2002; SEC 2002). At the same time, Section 404 of SOX significantly expanded internal control audit requirements and Auditing Standard No. 3 (AS 3) increased audit documentation requirements (Public Company Accounting Oversight Board [PCAOB] 2004a). Recent studies indicate that the acceleration in reporting deadlines, together with stronger attestation requirements, has compromised the reliability of accounting information by requiring auditors to do more work in less time (Bronson et al. 2010, Lambert et al. 2010). Given the potential tradeoff between the

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