The unintended consequences of PCAOB auditing Standard Nos. 2 and 3 on the reliability of preliminary earnings releases

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

“…Second, securities regulators in most countries around the world do not allow companies to issue their financial statements until after the conclusion of an external audit. Toward that end, prior research indicates companies can experience consequences such as negative market reactions and higher information asymmetry if the release of the audited financial statements is delayed (Bamber, Bamber & Schoderbek, 1993;Krishnan & Yang, 2009;Bronson et al, 2011). Third, a better understanding of what factors drive ARL is likely to provide more insights into audit efficiency.…”

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

“…3) LNMV is a proxy for systematic differences in companies' information environments (Collins et al, 1987). Bronson et al (2011). This indicates that firms with good news tend to release earnings earlier than firms with bad news by about seven days generally supporting the good-news-early, bad-news-late phenomenon in actual delay as opposed to unexpected delay.…”

“…Furthermore, unlike B&F, we include other determinants of annual earnings announcement timing. For example, we control for audit-related delay which is cited as single most important determinant of earnings announcement delay (Givoly & Palmon, 1982), although in the post-Sarbanes-Oxley Act Section 404, the great majority of firms no longer wait for the completion of audit fieldwork before they announce earnings (Bronson et al, 2011). A longer period of time is required to audit earnings reports reflecting bad news thus delaying their disclosure (Trueman, 1990).…”

Determinants and implications of audit reporting lags in China

“…Interestingly, timeliness of the release of audit report can also have an impact on the accuracy of accounting information. Bronson et al (2011) suggest that lengthy audit lag reduces the reliability of preliminary earnings releases: a 20 day delay in the audit report date increases the probability of a PEA (preliminary earnings announcement) revision that indicates a decrease in earnings reliability by one percentage point. However, the requirement that annual financial statements be subjected to external audit can conflict with timely reporting because the timeliness of financial reporting depends on the length of the audit.…”

“…It is thus important to explore the determinants of audit reporting lag and its implications. Most previous studies were conducted in the settings of developed countries or jurisdictions, such as the U.S. (Bronson et al, 2011;Kinney and McDaniel, 1993;Krishnan and Yang, 2009), Australia (Davis and Whittred, 1980), and Hong Kong (Ng and Tai, 1994).…”