The Busy Season Consequences of Non-Timely Audit Reports on Audit Reporting Lag: Exploring Office Level Domino Effects

• In Event: Research in Auditing

Abstract

This study examines busy season dynamics at the local office level comparing the impact of a non-timely audit report for large-accelerated filer (LAF) clients on the audit reporting lag (ARL) for other office busy season versus non-busy season clients. The empirical results provide strong support for the existence of the domino effect for office clients with a December fiscal year end. The results find that during busy season a non-timely audit report for a LAF client leads to an increase of the ARL for other clients in the local office. However no domino effect occurs with non-busy season clients. The domino effect is more pronounced if the non-timely audit report is filed after the extension period granted by SEC (more than 15 days delay in filing). The analysis also shows that the domino effect is more pronounced for midsize firms when compared to the large timely clients. Moreover, the results suggest the impact increases with local office size and decreases with client importance. The findings support practitioners’, PCAOB’s and scholars’ concern that busy season workload can negatively impact audit quality.

Authors

• Justyna Skomra, Penn State University - Erie

• R. Drew Sellers, Kent State University - Kent