Is Audit Committee Power Associated with Audit Completeness and Earnings Announcement Timing?

Abstract

Companies are increasingly disclosing earnings announcements prior to the completion of the year-end audit. Earnings that are released before the audit is complete are viewed negatively by investors and are positively associated with restatements and management turnover. We examine the role of the audit committee in the timing of earnings announcements. We predict and find that more powerful audit committees are positively associated with earnings announcements issued closer to audit completion. For observations with incomplete audits, we find that more powerful audit committees are negatively associated with restatements. Finally, more powerful audit committees are associated with delays in the earnings announcement. Our primary results are robust to the use of an entropy-balanced control sample and company fixed effects. These results indicate that audit committees play a role in earnings announcement timeliness and reliability, and have implications for researchers, investors, and regulators.

Board Gender Diversity, Audit Committee Activities and Financial Reporting Quality of Firms Listed in Nairobi Securities Exchange, Kenya

“…In particular, high activities of audit committee are linked with lower levels of fraud and (Berglund, Draeger, & Sterin, 2022). Effective audit committee activities are linked with fewer internal control issues, fewer financial restatements, and higher financial reporting quality (Draeger, Haislip, & Sterin, 2022). However, the direct impact of active audit committees on financial reporting quality is less clear.…”