The Influence of Interim Auditor Reviews on the Association of Returns with Earnings

Posted: 20 Nov 2002

See all articles by David Manry

David Manry

University of New Orleans - College of Business Administration - Department of Accounting

Samuel L. Tiras

Indiana University - Kelley School of Business

Clark M. Wheatley

Florida International University

Abstract

The Securities and Exchange Commission now requires auditors to review interim earnings reports on a timely basis. Previously, auditors could perform this review retrospectively, as part of the year-end audit. We investigate whether timely reviews are likely to increase the relevance and reliability of reported earnings, as reflected by the extent to which the earnings-return relation is contemporaneous. We find that when the auditor reviews interim earnings on a timely basis, the association between quarterly returns and earnings (and between quarterly returns and unexpected earnings) is predominantly contemporaneous. When the auditor reviews interim earnings retrospectively, however, the association between quarterly returns and earnings is not entirely contemporaneous; with retrospective reviews, returns lead interim earnings. We conclude from these findings that timely reviews increase the likelihood that accounting earnings reflect economic events contemporaneously with returns.

Keywords: interim auditor reviews, quarterly earnings, quarterly returns, quarterly unexpected earnings

JEL Classification: M41, M49, G12

Suggested Citation

Manry, David and Tiras, Samuel L. and Wheatley, Clark M., The Influence of Interim Auditor Reviews on the Association of Returns with Earnings. Available at SSRN: https://ssrn.com/abstract=332101

David Manry

University of New Orleans - College of Business Administration - Department of Accounting ( email )

2000 Lakeshore Drive
New Orleans, LA 70148-1530
United States
504-280-6432 (Phone)
504-280-6426 (Fax)

Samuel L. Tiras (Contact Author)

Indiana University - Kelley School of Business ( email )

801 W. Michigan Street
Indianapolis, IN 46202
United States
(317) 274-3420 (Phone)

Clark M. Wheatley

Florida International University ( email )

11200 SW 8th Street
MANGO 337
Miami, FL 33199
United States
305-348-4209 (Phone)

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