Recent Trends in Audit Report and Earnings Announcement Lags

The Securities and Exchange Commission introduced accelerated filing requirements for corporate 10-K and 10-Q filings in 2003. The major accounting firms and some companies expressed concerns about the acceleration, arguing that other changes in financial reporting and disclosure requirements, corporate governance, and auditing standards would make it difficult to meet the shorter deadlines while maintaining good quality reporting. Using longitudinal samples of companies for the period 2001-2006, the researchers examine two lags in the corporate reporting process: the audit report lag, and the earnings announcement lag. Their results indicate that both lags increased significantly in the two-year period 2001-2002 prior to the introduction of the accelerated filing requirements and in the period 2003-2006 when the new filing requirements were in effect. Thus it appears that an unintended consequence of recent policy changes is that companies are less likely to wait for completion of their audits to announce earnings.