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The Impact of Internal Control Quality on Audit Delay in the Sox Era


Michael Ettredge


University of Kansas - School of Business

Chan Li


University of Pittsburgh

Lili Sun


University of North Texas - Department of Accounting


Auditing: A Journal of Practice & Theory, Vol. 25, No. 2, 2006

Abstract:     
This study analyzes the impact of internal control quality on audit delay following the implementation of the Sarbanes-Oxley Act (2002) (SOX). Unlike prior studies of audit delay that obtain information about internal control strength via surveys, or use fairly crude proxies for internal control quality, our study employs external auditor assessments of internal control over financial reporting (ICOFR) that are publicly disclosed in SEC 10-K filings under SOX Section 404. Thus, the empirical evidence provided in this study is both timely and reliable (i.e. not subject to small sample bias or weak proxies). Consistent with our expectation, we find that the presence of material weakness in ICOFR is associated with longer delays. The types of material weakness also matter. Compared to specific material weakness, general material weakness is associated with longer delays. Additional analyses indicate that companies with control problems in personnel, process and procedure, segregation of duties, and closing process experience longer delays.

After controlling for other impact factors, this study also documents a significant increase in audit delay associated with the fulfillment of the SOX Section 404 ICOFR assessment requirement. This suggests that Section 404 assessments have made it more difficult for firms to comply with the SEC's desire to shorten 10-K filing deadlines. Our finding thus supports and helps explain the SEC's decisions in 2004 and 2005 to defer scheduled reductions in 10-K filing deadlines (from 75 days to 60 days) for large, accelerated filers.

Number of Pages in PDF File: 36

Keywords: Audit Delay, Internal Control, SOX 404, Filing Deadline

JEL Classification: M41, M49, G34, G38

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Date posted: September 5, 2005 ; Last revised: September 14, 2009

Suggested Citation

Ettredge, Michael and Li, Chan and Sun, Lili, The Impact of Internal Control Quality on Audit Delay in the Sox Era. Auditing: A Journal of Practice & Theory, Vol. 25, No. 2, 2006. Available at SSRN: http://ssrn.com/abstract=794669 or http://dx.doi.org/10.2139/ssrn.794669

Contact Information

Michael L. Ettredge (Contact Author)
University of Kansas - School of Business ( email )
1300 Sunnyside Avenue
Lawrence, KS 66045
United States
785-864-7537 (Phone)
785-864-5328 (Fax)
Chan Li
University of Pittsburgh ( email )
Pittsburgh, PA 15260
United States
Lili Sun
University of North Texas - Department of Accounting ( email )
1155 Union Circle #305219
Denton, TX 76203-5017
United States
940-565-3077 (Phone)
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