Earnings announcement delays and implications for the auditor-client relationship

Kimball Chapman (), Michael Drake (), Joseph H. Schroeder () and Timothy Seidel ()
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Kimball Chapman: Washington University in St. Louis
Michael Drake: Brigham Young University
Joseph H. Schroeder: Indiana University
Timothy Seidel: Brigham Young University

Review of Accounting Studies, 2023, vol. 28, issue 1, No 2, 45-90

Abstract: Abstract We examine whether delays in the expected release of annual earnings have implications for the future auditor-client relationship. Managers have strong incentives to release earnings on schedule, and auditors play an important role in helping their clients avoid costly earnings announcement delays. We find an increased likelihood of subsequent auditor-client realignments after earnings announcement delays. We further find that clients changing auditors realign with audit firms that better meet their earnings announcement timing demands, without finding evidence of a significant compromise in the reliability of the financial statement numbers in the earnings announcement. Our results help inform regulatory concerns about audit market concentration and how audit firm turnover has the potential to impact the auditor-client dynamic. While it is possible that auditor turnover could lead to a power imbalance where clients gain leverage in the relationship, our results suggest otherwise.

Keywords: M41; M42; Earnings announcement delays; Auditor dismissal; Auditor realignment; Financial reporting timeliness; Audit efficiency; Audit quality (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11142-021-09635-3

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