Voluntary Assurance on Interim Financial Statements and Earnings Quality

43 Pages Posted: 16 Jan 2014

See all articles by J. Efrim Boritz

J. Efrim Boritz

University of Waterloo - School of Accounting and Finance

Sati P. Bandyopadhyay

University of Waterloo

Multiple version iconThere are 2 versions of this paper

Date Written: January 15, 2014

Abstract

Under current Canadian securities regulatory requirements, public companies are able to choose whether to have their interim financial statements reviewed by external auditors on a quarter by quarter basis, but they must disclose when there has been no review performed. This differs from US practice where the Securities and Exchange Commission (SEC) requires a timely review of interim financial statements by the company’s auditor. Thus, the Canadian regulatory environment provides a natural laboratory to study the association between the determinants of voluntary reviews and earnings quality. Our study provides evidence that large and highly levered firms with independent board of directors tend to have their interim statements reviewed voluntarily. Moreover, quarterly discretionary accruals of reviewed firms are generally smaller than those of non-reviewed firms, reflecting better earnings quality. We control for possible self-selection bias in our empirical tests.

Keywords: Voluntary reviews, Earnings quality, Interim reporting, Signalling

Suggested Citation

Boritz, Efrim and Bandyopadhyay, Sati P., Voluntary Assurance on Interim Financial Statements and Earnings Quality (January 15, 2014). 2014 Canadian Academic Accounting Association (CAAA) Annual Conference. Available at SSRN: https://ssrn.com/abstract=2379725 or http://dx.doi.org/10.2139/ssrn.2379725

Efrim Boritz (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1 N2L 3G1
Canada
519-888-4567 (Phone)
519-888-7562 (Fax)

Sati P. Bandyopadhyay

University of Waterloo ( email )

School of Accountancy
Waterloo, Ontario N2L 3G1
Canada
519-888-4567, ext. 2533 (Phone)
519-888-7562 (Fax)

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