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

• In Event: Research Paper Session—Auditing

Abstract

The study examines whether the existence of a non-timely audit report for a large client in a Big 4 local office indicates the presence of a “domino effect”, reflected in longer audit report lag for small and midsize clients in that office. The audit report is defined as a non-timely when it is issued after the Securities and Exchange Commission (SEC) deadline for a client annual report. The study finds that an audit reporting lag for midsize and small size clients is longer when local office has an incidence of a non-timely audit report for a large client. Furthermore, the timeliness of the audit report is affected to a greater degree when the delay at a large client exceeds 15 days. The paper also examines selected office characteristics and their impact on the domino effect. It finds that local office size increases the impact while client importance reduces the impact of the domino effect. The city and national industry expertise have no impact on the domino effect. The additional analysis shows that the effect is more pronounced for midsize clients than for small clients as an auditor office has less time to recover from the delay at a large client before completing audit assignment for midsize clients. In general, the evidence provided by this study implies that at least one non-timely audit report for large client has implications for the midsize and small size clients in that office.

Author

• Justyna Skomra, Kent State University - Kent