The Association Between Auditor Changes and Reporting Lags*

Abstract

This paper examines audit report lags and eamings announcement lags for a sample of firms that switched auditors. We investigate whether audit report and earnings announcement lags are associated with the timing of auditor changes in relation to firms' fiscal year-ends. It is hypothesized that firms which replace their auditor early (late) in the fiscal year do so for positive (negative) reasons and experience shorter (longer) reporting lags. Conflicts over reporting issues can be difficult to resolve and consequently lead to reporting delays. In other cases, clients may be more concerned about adhering to customary reporting practices or improving reporting timeliness. These are likely to be considerations in auditor realignment decisions and are predictably refiected in the timing of the auditor change.Resume. Les auteurs s'interessent aux d6calages dans la production des rapports des verificateurs et dans la publication des benefices, pour un fchantillon d'entreprises ayant chang6 de vfirificateurs. Ils se demandent si ces decalages sont reliSs au choix du moment du changement de verificateurs par rapport it la date de cloture de I'exercice, Selon leur hypothfese, les entreprises qui remplacent leurs verificateurs tot (tard) dans I'exercice le font f)our des raisons positives (negatives), et les decalages enregistrds dans la production de rinformation sont plus courts (plus longs). Les confiits touchant les questions relatives & l'information h foumir peuvent etre difficiles k resoudre et, en consequence, conduire h des retards dans la publication de l'information, Dans d'autres cas, les entreprises clientes peuvent etre davantage pr6occupees par le respect des methodes coutumieres de presentation de l'information ou par l'acceMration de la publication de l'information, Ces facteurs sont susceptibles d'entrer en ligne de compte dans les decisions de reorientation des verificateurs, et il est h prevoir qu'ils se refieteront dans le choix du moment du changement de verificateurs.The empirical findings for both audit report and eamings announcement lags are consistent with the hypotheses. Despite the increase in reporting lags for late switchers, we observe a higher incidence of switching in the fourth quarter than in any other quarter. Additionally, we detect a higher percentage of losses and

An International Perspective on Audit Report Lag: A Synthesis of the Literature and Opportunities for Future Research

“…Studies have generally concluded that Big N and international accounting firms both provide timelier US financial reports (Schwartz & Soo, 1996;Impink et al, 2012;Schmidt & Wilkins, 2013). International accounting research has also provided evidence that the use of Big N auditors is associated with shorter ARL in Canada , Bangladesh (Imam, Ahmed & Khan, 2001), and Greece (Leventis et al, 2005).…”

“…On the other hand, Lee et al (2009) and Dao and Pham (2014) both documented that longer audit tenures are associated with shorter ARL. A related stream of research has found that companies that change their public accounting firm during the year required more days to complete their financial statement audit (Schwartz & Soo, 1996;Henderson & Kaplan, 2000;Ettredge et al, 2006). However, Tanyi, Raghunandan and Barua (2010) provided a deeper insight into this relationship.…”

“…For example, Ashton et al (1989), Newton and Ashton (1989), Carslaw and Kaplan (1991), Bamber et al (1993), Schwartz and Soo (1996), and Givoly and Palmon (1982) all found that industry classification is associated with ARL. Specifically, financial industries tend to have lower ARL, and companies with more risk and higher probability of litigation are associated with longer ARL.…”

The Association between Earnings News and The Timing of Annual Earnings Announcements

“…We expect the number of segments (NUM), extraordinary items (EXTR), negative earnings (LOSS), and an auditor's opinion (OPIN) to be positively related with LAG (Ashton et al, 1987;Schwartz & Soo, 1996). In addition, we include three more factors expected to impact audit procedure: busy seasons (YEND), auditor type (BIG4), and firm size (SIZE).…”

“…We do not predict for YEND and BIG4 because of mixed results in the literature. The directions of these variables vary depending on audit resources and audit procedure (Schwartz & Soo 1996). The variable of SIZE is expected to be negative because large firms have more resources and keep excellent internal controls which shortens audit process and thus announcement delay (Owusu-Ansah, 2000).…”