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Do Reviews by External Auditors Improve the Information Content of Interim Financial Statements?

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  • Kajüter, Peter
  • Klassmann, Florian
  • Nienhaus, Martin

Abstract

In the last decades, regulators around the world have increasingly mandated stricter assurance requirements for interim reporting. In several countries, firms must have their interim financial statements reviewed by an external auditor. However, there is little evidence to indicate whether auditor assurance is desirable for interim financial statements. We address this gap and analyze whether investors care about a review of interim financial statements. By exploiting a setting in which firms can voluntarily decide to buy a review, we find that the publication of reviewed interim financial statements causes more abnormal return volatility as well as abnormal trading volume than the publication of un-reviewed interim financial statements. Additional analyses reveal that the increase in information content is largely driven by a signaling effect of the review rather than by an increase in earnings quality. The findings inform the current political debate of mandating reviews for interim financial statements in several jurisdictions.

Suggested Citation

  • Kajüter, Peter & Klassmann, Florian & Nienhaus, Martin, 2016. "Do Reviews by External Auditors Improve the Information Content of Interim Financial Statements?," The International Journal of Accounting, Elsevier, vol. 51(1), pages 23-50.
    • Handle: RePEc:eee:accoun:v:51:y:2016:i:1:p:23-50
    DOI: 10.1016/j.intacc.2016.01.003
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    4. Filip, Andrei, 2016. "Discussion of “Do Reviews by External Auditors Improve the Information Content of Interim Financial Statements”," The International Journal of Accounting, Elsevier, vol. 51(1), pages 51-56.
    5. McCallig, John & Robb, Alastair & Rohde, Fiona, 2019. "Establishing the representational faithfulness of financial accounting information using multiparty security, network analysis and a blockchain," International Journal of Accounting Information Systems, Elsevier, vol. 33(C), pages 47-58.

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    More about this item

    Keywords

    Interim review; Interim financial reporting; Information content; Abnormal return volatility; Abnormal trading volume;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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