Audit Quality in the Presence of a Public Commitment to an Earnings Announcement Date

• In Event: Audit Quality

Abstract

In this study we analyze how public commitments to earnings announcement dates affect audit quality. We use a setting of earnings notifications, which are firm-initiated public announcements of the date and time that earnings will be disclosed. We predict that when earnings notifications are made earlier, audit quality suffers because uncertainty about audit outcomes is higher early in the process and auditors may feel pressure to prioritize meeting the publicly announced deadline. We find a positive association between absolute discretionary accruals, the frequency with which managers meet or marginally exceed earnings expectations, and audit fees with earnings notification lead time. These results are consistent with public commitments to earnings announcement dates negatively affecting audit quality. Our findings document a previously unexplored aspect of time pressure on audit outcomes and suggest that audit quality suffers when predetermined and rigid audit deadlines are externally imposed, even when the amount of time available to conduct the audit is unchanged.

Authors

• Timothy Andrew Seidel, Brigham Young Unversity

• Michael Drake, Brigham Young University

• Kimball Chapman, Penn State University