The effect of changing fiscal year-ends on audit fees and audit quality

Angel Arturo Pacheco Paredes and Clark Wheatley

Journal of Financial Economic Policy, 2019, vol. 12, issue 3, 365-382

Abstract: Purpose - This study aims to extend recent research analyzing the effect of auditor busyness on audit quality. Specifically, this study explores the effect on audit quality of a change of fiscal year-end to or from an audit firm’s busy period. Design/methodology/approach - Empirical archival. Findings - 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. This study finds no difference in the level of audit quality after a change in fiscal year-end. Practical implications - There are significant implications for audit firms as they may gain cost advantages by successfully promoting off-season fiscal year-ends, and reduce the negative effect on employees associated with “busy season” stress. Similarly, client firms may find that audit costs are reduced when they adopt a less “busy” fiscal year-end. Social implications - These results have policy implications for regulators because regulators often dictate the fiscal year-end for certain industries or traded securities. Such dictates may thus introduce inefficiencies into the market for audit services. Originality/value - These results should guide regulators in their decisions to dictate fiscal year-ends and firms in their choice of reporting periods.

Keywords: Accounting and auditing; Cost-benefit analysis; Policy objectives; Fiscal year-end; Audit fees; Audit effort; Audit quality (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-07-2019-0140

DOI: 10.1108/JFEP-07-2019-0140

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