Benefits and Costs of Auditor's Assurance: Evidence from the Review of Quarterly Financial Statements

Jean Bédard and Lucie Courteau

Contemporary Accounting Research, 2015, vol. 32, issue 1, 308-335

Abstract: Even though there is a worldwide consensus as to the necessity of an audit of annual financial statements for public companies, there is divergence of views as to the review of interim financial statements. While some jurisdictions make it mandatory (e.g., Australia, France, United States), others allow the review without requiring it (e.g., Canada, United Kingdom). Using a sample of companies listed in Canada, we examine the costs associated with these reviews and the benefits they generate in terms of improvement in the quality of interim financial statements for the years 2004 and 2005. Controlling for the decision to purchase the reviews, we find that audit fees are 18 percent higher for firms with interim reviews and, contrary to many regulators' assumption, we find no evidence that this cost increase is proportionally higher for smaller firms. Regarding the benefits of interim reviews, we find no significant association between either accruals†or nonaccruals†based measures of earnings management and the fact that the interim statements are reviewed by the auditor, neither in the interim reports nor in those of the fourth quarter. The results suggest that auditors' involvement with interim reports may not be as effective as previously thought at controlling the quality of interim financial statements.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/1911-3846.12091

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:coacre:v:32:y:2015:i:1:p:308-335

Access Statistics for this article

More articles in Contemporary Accounting Research from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().