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The unintended consequences of PCAOB auditing Standard Nos. 2 and 3 on the reliability of preliminary earnings releases

Author

Listed:
  • Bronson, Scott N.
  • Hogan, Chris E.
  • Johnson, Marilyn F.
  • Ramesh, K.

Abstract

Implementation of Public Company Accounting Oversight Board Auditing Standards No. 2 on internal control and No. 3 on documentation has delayed audit completion. However, due to market demand for timely disclosures, most firms maintain the same preliminary earnings release date even though the audit may not be complete as of that date. Results indicate revisions to preliminary announcements when filing the 10-K report would have been 35% lower during 2005 if the historical frequency of issuing earnings releases after the audit report date had not changed. Additionally, stock market reaction to impending revisions suggests lower reliability of preliminary earnings.

Suggested Citation

  • Bronson, Scott N. & Hogan, Chris E. & Johnson, Marilyn F. & Ramesh, K., 2011. "The unintended consequences of PCAOB auditing Standard Nos. 2 and 3 on the reliability of preliminary earnings releases," Journal of Accounting and Economics, Elsevier, vol. 51(1), pages 95-114.
  • Handle: RePEc:eee:jaecon:v:51:y:2011:i:1:p:95-114
    DOI: 10.1016/j.jacceco.2010.06.002
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:joacli:v:32:y:2013:i:1:p:30-60 is not listed on IDEAS
    2. Mike Qinghao Mao & Yangxin Yu, 2015. "Analysts' Cash Flow Forecasts, Audit Effort, and Audit Opinions on Internal Control," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 42(5-6), pages 635-664, June.
    3. repec:eee:advacc:v:30:y:2014:i:2:p:283-297 is not listed on IDEAS
    4. repec:eee:reacre:v:26:y:2014:i:2:p:175-195 is not listed on IDEAS
    5. repec:eee:accfor:v:38:y:2014:i:2:p:109-121 is not listed on IDEAS
    6. repec:eee:reacre:v:25:y:2013:i:2:p:185-195 is not listed on IDEAS
    7. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    8. repec:eee:accfor:v:39:y:2015:i:1:p:19-33 is not listed on IDEAS

    More about this item

    Keywords

    Audit report lag; Audit report date; Audit regulation; Earnings announcement date; Preliminary earnings reliability; Unintended consequences;

    JEL classification:

    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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