The Securities and Exchange Commission now requires auditors to review interim earnings reports on a timely basis. Previously, auditors could perform this review retrospectively, as part of the year-end audit. We investigate whether timely reviews are likely to increase the relevance and reliability of reported earnings, as reflected by the extent to which the earnings-return relation is contemporaneous. We find that when the auditor reviews interim earnings on a timely basis, the association between quarterly returns and earnings (and between quarterly returns and unexpected earnings) is predominantly contemporaneous. When the auditor reviews interim earnings retrospectively, however, the association between quarterly returns and earnings is not entirely contemporaneous; with retrospective reviews, returns lead interim earnings. We conclude from these findings that timely reviews increase the likelihood that accounting earnings reflect economic events contemporaneously with returns.

Prior research has shown that accounting information available prior to a bankruptcy is associated with the likelihood of bankruptcy. We show that additionally, the accounting information available prior to bankruptcy is associated with whether or not a firm will "emerge" from bankruptcy. We predict that firms that exhibit low solvency risk and high liquidity risk are most likely to emerge from bankruptcy. Firms that exhibit high solvency risk and high liquidity risk are predicted to be least likely to emerge from bankruptcy. Cross-sectionally, our results support these predictions, but our findings differ across large and small firms. Copyright Blackwell Publishers Ltd 2002.

Purpose The purpose of this paper is to extend prior literature regarding the interrelationships between national culture and accounting practices. Design/methodology/approach Using Hofstede’s (1980) cultural indices, the authors employ hierarchical linear modeling to examine the impact of economic growth (emerging markets), country, and culture on real earnings management (REM) for a sample of firms from 31 countries. Findings The results reveal a negative association between REM and Hofstede’s (1980) measures of individualism, masculinity, and uncertainty avoidance, but a positive association with power distance. These results hold even after controlling for discretionary accruals. The results further reveal that measures of investor protection are subsumed by culture. Research limitations/implications The findings are limited by the use of Hofstede’s (1980) data. There is, however, a significant body of research that continues to rely on and support the use of Hofstede’s model. Practical implications The results should be of significant importance to investors who should consider cultural characteristics when assessing firm reported performance, and should prompt auditors and regulators to apply greater scrutiny to the financial reports in cultures characterized by high levels of power distance, especially given the apparent tradeoffs between accruals and REM. Social implications The results reveal that status as an emerging market does not influence managers’ use of REM, and that the strength of a country’s investor protection mechanisms are subsumed by culture. Similarly, accounting systems (e.g. International Financial Reporting Standards), by themselves, do not bring about a convergence of managerial behavior. Rather, investors should consider culture when making decisions regarding capital allocation. Originality/value The increasing trend toward economic globalization and accounting harmonization makes the understanding of differences in accounting practices, and the possible impact of national culture on manager’s decisions, more important than ever. This research links REM to cultural values and tests for evidence that national culture, values, and structures of investor protection affect REM in the ways they affect managers’ attitudes toward the management of earnings through accruals.

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SYNOPSIS Regulators and legislators have long been interested in the auditor change process and in auditors' learning curves. We find that auditor changes closer to the year-end are associated with longer reporting lags and lower audit quality. We find that both audit fees and audit report lags are higher when there is a hiring lag between announcements of the predecessor auditor's dismissal and the hiring of the successor auditor. We also find that the appointment of new executives is associated with the timing of the auditor change, suggesting that client executives have a significant role in the auditor-hiring process.