Late for a Very Important Date: Financial Reporting and Audit Implications of Late 10-K Filings

52 Pages Posted: 17 Jan 2012 Last revised: 7 Jun 2016

See all articles by Jian Cao

Jian Cao

Florida Atlantic University

Feng Chen

University of Toronto - Rotman School of Management

Julia L. Higgs

Florida Atlantic University - School of Accounting

Date Written: August 3, 2015

Abstract

Delays in Securities and Exchange Commission (SEC) filings often reflect issues related to period-end financial reporting and audit processes. We investigate the impact of filing delays in connection with auditor characteristics on the quality of audited financial statements in a sample of firms that filed Form 10-K after the statutory due date. We find that late filing firms are associated with lower financial reporting quality compared to timely filing firms matched by propensity scores, where financial reporting quality is measured by the absolute value of performance-matched discretionary accruals and the probability of a late 10-K filing being restated in subsequent periods. We also find that late filing explanations disclosed on SEC Form 12b-25, Notification of Late Filing, reveal to some extent the issues faced by such firms. Furthermore, we demonstrate that the adverse consequences of late filings can be largely mitigated by having a Big 4 auditor. The differential audit quality stems primarily from Big 4 auditors in large offices, and is more pronounced in situations in which the auditor may need to draw on additional resources in a limited period of time. Overall, our findings suggest that the issues underlying a delinquent 10-K filing have adverse consequences for accounting/audit quality, and large Big 4 offices have both more in-house capacity and greater incentives for reputation protection to respond to the risk associated with late filers.

Keywords: Restatements, Office size, Late SEC filings, Financial reporting quality, Big 4 auditors, Accruals

JEL Classification: M41, M42, G34

Suggested Citation

Cao, Jian and Chen, Feng and Higgs, Julia L., Late for a Very Important Date: Financial Reporting and Audit Implications of Late 10-K Filings (August 3, 2015). Review of Accounting Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1985765 or http://dx.doi.org/10.2139/ssrn.1985765

Jian Cao

Florida Atlantic University ( email )

777 Glades Rd.
Boca Raton, FL 33431
United States
561-297-3727 (Phone)

Feng Chen (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Julia L. Higgs

Florida Atlantic University - School of Accounting ( email )

University Tower
220 SE 2 Avenue
Fort Lauderdale, FL 33301
United States

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