Do Audit Committees Influence the Timing and Quality of Earnings Announcements?

• In Event: Break and Research & Education Poster Forum

Abstract

This study examines the role of the audit committee in preventing early-released earnings announcements (EAs). Companies are increasingly disclosing EAs prior to the completion of the year-end audit. These early-released EAs are found to be less reliable and indicative of lower financial reporting quality. Therefore, an effective audit committee should require a complete audit prior to the EA disclosure in order to protect investor interests. We predict and find that more powerful audit committees (relative to management) are positively associated with EAs issued on or after the audit completion date (audit completeness). We also find that audit committee expertise is associated with fewer subsequent EA revisions, indicating that audit committee expertise serves as an alternate governance mechanism in the absence of a completed audit. These combined results indicate that audit committees have a role in the EA release date and underlying financial reporting quality, and have implications for researchers, investors, and regulators.

Authors

• Michelle Draeger, Colorado State University

• Jacob Zachary Haislip, Texas Tech University

• Mikhail Sterin, Oklahoma State University