Changing Fiscal Year Ends

• In Event: Auditing, Audit Quality, and Materiality

Abstract

This study extends recent research analyzing the effect of auditor busyness on audit quality. Specifically, we explore the effect on audit quality of a change of fiscal year end to or from an audit firm’s busy period. We define busy period as a function of clients’ fiscal year end within a specific industry group. We find that when firms change their fiscal year end to a period when the auditor is less busy, client firms are rewarded with lower audit fees and auditors are rewarded with a reduction in required effort. We find no difference in the level of audit quality after a change in fiscal year end. The first two results hold, however, only for Big 4 auditors and their client firms. When we examine non-Big 4 audit firms and their clients, switching to a non-clustered year-end has no significant impact on audit fees or audit effort.

Authors

• Clark M Wheatley, Florida International University

• Angel Arturo Pacheco Paredes, Texas A&M International University