Authors: DAN SHAW
Abstract
This paper examines the variation in audit quality between non-timely filers and propensity matched samples of timely filers. In differentiating my study from others of similar setting, I examine all non-timely filers, consecutive non-timely filers, and non-consecutive non-timely filers separately. Additionally, I examine the variation in audit quality associated with the number of days of the grace period utilized before filing the audit opinion. I find that non-timely filers are typically associated with lower audit quality when compared to a propensity-matched sample of timely filers. However, clients with Big 4 auditors largely mitigate the association between non-timely filers with low quality and, in some cases, even improve audit quality for non-timely filers versus timely filers. I also find evidence of an effect of incremental audit effort on the association between audit quality and non-timely filers. That is, the number of days utilized of the statutory grace period has an impact on audit quality. Interestingly, across the non-timely filer sample partitions and auditor sizes (Big 4/non-Big 4), there is no single day that is more associated with high or low quality for every quality proxy even after controlling for events that may influence a company’s reporting delay. This study contributes to our understanding of non-timely filers, their unique characteristics, and the impact on audit quality when effort is variable.
Keywords: Form 12b-25, non-timely, delay, audit quality, audit effort, Big 4, discretionary revenues, discretionary accruals, restatements
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