An Incomplete Audit at the Earnings Announcement: Implications for Financial Reporting Quality and the Market's Response to Earnings

Nathan T. Marshall · Joseph H. Schroeder · Teri Lombardi Yohn

48 citations0/0 files storedContemporary Accounting Research

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Auditing, Earnings Management, Governance Corporate Governance and Financial Management Financial Reporting and XBRL

Abstract

ABSTRACT There has been a substantial increase, since 2004, in the number of firms that announce annual earnings before audit completion as opposed to after audit completion. In this study, we argue that earnings announced before audit completion are associated with lower financial reporting quality and investor perceptions that earnings are more likely to be overstated. Consistent with this expectation, we document that the market places more (less) weight on good (bad) earnings news for earnings announced after audit completion relative to earnings announced before audit completion. We continue to find this differential market response when we expand the returns window to include the 10‐K filing date, suggesting that the differential response is not driven by investors' temporary concerns about earnings revisions between the earnings announcement and the 10‐K filing date or by differential GAAP disclosures in the earnings announcement, as suggested in prior research. Finally, as a direct test of financial reporting quality, we show that earnings announced with a completed audit are less likely to be restated in the future, are less likely to meet or beat expectations, and are associated with fewer income‐increasing discretionary accruals than those announced with an incomplete audit.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 48 citations exist upstream.

References

2010Understanding earnings quality: A review of the proxies, their determinants and their consequences 2014A review of archival auditing research 2001Forecasting Bankruptcy More Accurately: A Simple Hazard Model 2002The Relation between Auditors' Fees for Nonaudit Services and Earnings Management 2002Management's Incentives to Avoid Negative Earnings Surprises 1993Perceived Auditor Quality and the Earnings Response Coefficient 2009National and Office‐Specific Measures of Auditor Industry Expertise and Effects on Audit Quality 2010Can Big 4 versus Non-Big 4 Differences in Audit-Quality Proxies Be Attributed to Client Characteristics?

Cited by

2024Rank-and-file accounting employee compensation and financial reporting quality 2020Corporate Governance Determinants of Financial Restatements: A Meta-Analysis 2017Opportunity Knocks But Once: Delayed Disclosure of Financial Items in Earnings Announcements and Neglect of Earnings News 2022On the Use of Residuals as Dependent Variables 2021Releasing Earnings when the Audit is Less Complete: Implications for Audit Quality and the Auditor/Client Relationship

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.