The process for providing accounting information to the public has not changed much in the last century even though the extent of disclosure has increased signifi-cantly. Sundem et al. (1996) suggest that the primary benefit of audited financial statements may not be decision usefulness but the discipline imposed by timely confirmation of previously available information. In general, the value of information from the audited financial statement will decline as the audit report lag (the time period between a company's fiscal year end and the date of the audit report) increases since competitively oriented users may obtain substitute sources of information. Furthermore, the literature on earnings quality and earnings management suggests that unexpected reporting delays may be associated with lower quality information. The purpose of this paper is to extend our understanding about the determinants of audit report lag using a proprietary database containing 226 audit engagements from an international public accounting firm. We examine three previously uninvestigated audit firm factors that potentially influence audit report lag and are controllable by the auditor: (1) incremental audit effort (e.g., hours), (2) the resource allocation of audit team effort measured by rank (partner, manager, or staff), and (3) the provision of nonaudit services (MAS and tax). The results indicate that incremental audit effort, the presence of contentious tax issues, and the use of less experienced audit staff are positively correlated with audit report lag. Further, audit report lag is decreased by the potential synergistic relationship between MAS and audit services.

The purpose of this study is to highlight issues of interest to researchers employing the I/B/E/S earnings and forecast data. I/B/E/S has traditionally provided per share data on a split-adjusted basis, rounded to the nearest penny. In doing so, per share amounts are comparable over time. However, because not all prior forecasts and earnings per share amounts divide precisely to a penny, adjusting for stock splits and rounding to the nearest penny can cause a loss of information. Researchers are prohibited in many cases from determining the amounts actually reported in prior years, leading to misclassified observations. We obtain actual (unadjusted) earnings and forecast data from I/B/E/S and compare results to those generated using the a djusted I/B/E/S data. We replicate prior studies and find that conclusions are affected when using the actual I/B/E/S data.

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Prior to the Sarbanes–Oxley Act of 2002, audit partners experienced economic pressure to grow revenue from the sale of nonaudit services to their audit clients. To an auditor who is highly rewarded for revenue generation and growth, nonaudit services may represent a particularly strengthened economic bond with the client. Prior research shows that, in general, nonaudit service fees received in the current period do not impair audit quality. We examine a different setting. We propose that auditor independence can become impaired, and audit quality compromised, when clients that currently purchase relatively low amounts of nonaudit services, increase their purchases of nonaudit services from the auditor in the subsequent period. We test our prediction in the context of earnings management as a proxy for audit quality, measured by (a) performance‐adjusted discretionary accruals and (b) classification shifting of core expenses. Our results indicate that prior to the Sarbanes‐Oxley Act, rewards to the auditor in the form of future additional nonaudit service fees from current‐year high fee‐growth‐opportunity clients adversely affects audit quality. This effect is particularly strong among companies with powerful incentives to manage earnings. Our findings indicate that regulators should consider the multiperiod nature of the client–auditor relationship when contemplating policies that restrict nonaudit services, as well as the overall environment in which audit partners operate. This might include partner compensation arrangements that put pressure on audit partners to focus on increasing revenue at the expense of audit quality.

This study investigates audit firm specialization in settings where managers have incentives to modify earnings to achieve analysts' earnings forecasts. The results indicate that audit firms that have a large market share of clients within a particular industry, and audit firms that receive a significant portion of their firm revenues from a specific industry, are associated with audited financial statement earnings that increase absolute levels of analysts' forecast error and are less likely to just meet or beat analysts' forecasts.