Do Covenant Violations Affect Audit Report Timeliness?

International Journal of Accounting, Auditing and Performance Evaluation, Volume 14, Issue 1, January 2018, pp 1-23.

Posted: 16 Jun 2018

See all articles by Zane L. Swanson

Zane L. Swanson

University of Central Oklahoma

Yinghong Zhang

University of Central Oklahoma

Date Written: January 2018

Abstract

We investigate the impact of covenant violations on audit report timeliness. We argue that the existence of covenant violations might motivate clients or banks to seek waivers or renegotiation's of current lending contracts. Otherwise, auditors might perform more audit tests before issuing audit opinions. Ultimately, auditors will increase the number of days to complete the audit. Our major findings are consistent with our prediction. In addition, we find that the presence of early covenant violations further increases audit delays. Our findings identify another factor affecting the audit report timeliness and one economic consequence of covenant violations.

Keywords: Audit Report Timeliness, Audit Delay, Audit Report Lag, Covenant Violation, Technical Default, Private Lending Agreements

JEL Classification: M4

Suggested Citation

Swanson, Zane L. and Zhang, Yinghong, Do Covenant Violations Affect Audit Report Timeliness? (January 2018). International Journal of Accounting, Auditing and Performance Evaluation, Volume 14, Issue 1, January 2018, pp 1-23., Available at SSRN: https://ssrn.com/abstract=3188201

Zane L. Swanson

University of Central Oklahoma ( email )

100 North University Drive
Edmond, OK 73034
United States

Yinghong Zhang (Contact Author)

University of Central Oklahoma ( email )

100 North University Drive
Edmond, OK 73034
United States

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