Information Technology Investments and the Timeliness of Financial Reports

• In Event: External Reporting Quality and Technology Investments

Abstract

IT applications have changed the way companies conduct business, prepare financial reports, and have their financial statements audited. As a result, firms’ IT applications could affect the timeliness of financial reporting and auditing. On one hand, IT complexity creates challenges for financial statement preparers and auditors in the areas of internal control, reporting processes, and detecting misstatements. On the other hand, IT systems help improve internal control and reporting effectiveness. Using firm-level IT data from 1999 to 2009, we find the extent of IT investments is negatively related to both earnings report lag and audit lag. From the lowest to the highest deciles of IT investments, both lags are on average shortened about four days. We further find that the extent of IT investments is more negatively related to earnings reporting lag for more financially distressed, complex, and larger firms and more negatively related to audit lag for more complex and larger firms.

Authors

• Joseph H. Zhang, The University of Memphis

• Joseph Johnston, City University of Hong Kong