Benefits and Costs of Auditor’s Assurance: Evidence from the Review of Quarterly Financial Statements

55 Pages Posted: 11 Nov 2010 Last revised: 12 Jul 2013

See all articles by Jean Bédard

Jean Bédard

Université Laval - École de comptabilité

Lucie Courteau

Free University of Bozen-Bolzano - Faculty of Economics and Management

Date Written: May 1, 2013

Abstract

Even though there is a worldwide consensus as to the necessity of an audit of annual financial statements for public companies, there is divergence of views as to the review of interim financial statements. While some jurisdictions make it mandatory (e.g., Australia, France, US), others allow the review without requiring it (e.g., Canada, UK). Using a sample of companies listed in Canada, we examine the costs associated with these reviews and the benefits they generate in terms of improvement in the quality of interim financial statements for the years 2004 and 2005. Controlling for the decision to purchase the reviews, we find that audit fees are 18 percent higher for firms with interim reviews and, contrary to many regulators’ assumption, we find no evidence that this cost increase is proportionally higher for smaller firms.

Regarding the benefits of interim reviews, we find no significant association between either accruals- or non accruals-based measures of earnings management and the fact that the interim statements are reviewed by the auditor, neither in the interim reports nor in those of the fourth quarter. The results suggest that auditors’ involvement with interim reports may not be as effective as previously thought at controlling the quality of interim financial statements.

Keywords: Interim Financial Reporting, Auditor Reviews, Regulation, Audit Fees, Unexpected Accruals

JEL Classification: G38, M41, M49

Suggested Citation

Bédard, Jean and Courteau, Lucie, Benefits and Costs of Auditor’s Assurance: Evidence from the Review of Quarterly Financial Statements (May 1, 2013). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1701038 or http://dx.doi.org/10.2139/ssrn.1701038

Jean Bédard

Université Laval - École de comptabilité ( email )

2325, rue de la Terrasse
Québec, Québec G1V 0A6
Canada
418-656-7055 (Phone)
418-656-2624 (Fax)

Lucie Courteau (Contact Author)

Free University of Bozen-Bolzano - Faculty of Economics and Management ( email )

Faculty of Economics and Management
Piazza Università 1
39100 Bozen-Bolzano (BZ), Bozen 39100
Italy

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