The Influence of Timely Reviews on the Credibility of Quarterly Earnings

37 Pages Posted: 20 Jul 1999

See all articles by David Manry

David Manry

University of New Orleans - College of Business Administration - Department of Accounting

Samuel L. Tiras

Indiana University - Kelley School of Business

Clark M. Wheatley

Florida International University

Date Written: July 7, 1999

Abstract

The Securities and Exchange Commission (SEC) requires registrants to report interim financial information with their quarterly filings. This information need not be audited, but must be reviewed either quarterly (a timely review) or as part of the year-end audit (a retrospective review). The earlier auditor involvement required by timely reviews is believed to impart greater credibility to interim financial information; the Treadway Commission (1987) and the Whitehead-Millstein Committee (1999) both recommend that timely reviews be the required alternative. Retrospectively-reviewed interim earnings are believed to be less credible because the lack of interim-period auditor involvement permits opportunistic reporting by management. Credibility for those retrospectively-reviewed interim reports is, therefore, delayed until the year-end audit where 'settling-up' adjustments are recorded. We predict and provide evidence that the difference in credibility across timely- and retrospective-reviews results in returns being more highly associated (1) with changes in earnings for the interim periods when the review is timely and (2) with earnings levels for the fourth quarter, when the review is retrospective. The evidence also indicates that the influence of review type on the association between returns and quarterly earnings differs based on whether the earnings news is good or bad and whether it confirms or contradicts prior quarter's earnings changes.

JEL Classification: M41, M49, G12

Suggested Citation

Manry, David and Tiras, Samuel L. and Wheatley, Clark M., The Influence of Timely Reviews on the Credibility of Quarterly Earnings (July 7, 1999). Available at SSRN: https://ssrn.com/abstract=166988 or http://dx.doi.org/10.2139/ssrn.166988

David Manry

University of New Orleans - College of Business Administration - Department of Accounting ( email )

2000 Lakeshore Drive
New Orleans, LA 70148-1530
United States
504-280-6432 (Phone)
504-280-6426 (Fax)

Samuel L. Tiras (Contact Author)

Indiana University - Kelley School of Business ( email )

801 W. Michigan Street
Indianapolis, IN 46202
United States
(317) 274-3420 (Phone)

Clark M. Wheatley

Florida International University ( email )

11200 SW 8th Street
MANGO 337
Miami, FL 33199
United States
305-348-4209 (Phone)

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