Keywords

earnings announcement delays, auditor-client realignment, audit firm turnover

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 any evidence of a significant compromise to 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.

Original Publication Citation

Chapman, Kimball and Drake, Michael S. and Schroeder, Joseph H. and Seidel, Timothy A., Earnings Announcement Delays and Implications for the Auditor-Client Relationship (February 18, 2021). Review of Accounting Studies, Kelley School of Business Research Paper No. 2021-18, Available at SSRN: https://ssrn.com/abstract=3788350

Document Type

Peer-Reviewed Article

Publication Date

2021

Publisher

Review of Accounting Studies

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

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