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Bringing Darkness to Light: The Influence of Auditor Quality and Audit Committee Expertise on the Timeliness of Financial Statement Restatement Disclosures

41 Pages Posted: 19 Mar 2011 Last revised: 4 Oct 2013

Jaime J. Schmidt

University of Texas at Austin

Michael S. Wilkins

University of Kansas, School of Business, Accounting and Information Systems Area, Students

Date Written: August 5, 2011

Abstract

This study investigates whether auditor quality and audit committee expertise are associated with improved financial disclosure timeliness as measured by the duration of a financial statement restatement’s “dark period.” The restatement dark period represents the length of time between a company’s discovery that it will need to restate financial data and the subsequent disclosure of the restatement’s effect on earnings. For a sample of dark restatements disclosed during 2004–2009, we find that companies that engage Big 4 auditors have shorter dark periods than companies that do not engage Big 4 auditors. We also find that companies with more financial experts on the audit committee have shorter dark periods, particularly when such financial expertise relates specifically to accounting. Finally, companies with audit committee chairs that have accounting financial expertise have the greatest improvement in disclosure timeliness, as the dark periods for these firms are reduced by roughly 50%. Our results suggest that both auditor and audit committee expertise are important in facilitating the timely disclosure of restatement details.

Keywords: financial reporting timeliness, financial statement restatements, audit quality, audit committees, financial expertise, accounting experience

Suggested Citation

Schmidt, Jaime J. and Wilkins, Michael S., Bringing Darkness to Light: The Influence of Auditor Quality and Audit Committee Expertise on the Timeliness of Financial Statement Restatement Disclosures (August 5, 2011). Auditing: A Journal of Practice & Theory, Vol. 32, No. 1, 2013. Available at SSRN: https://ssrn.com/abstract=1787008 or http://dx.doi.org/10.2139/ssrn.1787008

Jaime J. Schmidt (Contact Author)

University of Texas at Austin ( email )

Austin, TX 78712
United States

Michael S. Wilkins

University of Kansas, School of Business, Accounting and Information Systems Area, Students ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States

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