Auditor Litigation Risk and Corporate Disclosure of Quarterly Review Report

44 Pages Posted: 17 Oct 2005 Last revised: 21 Apr 2014

See all articles by Jagan Krishnan

Jagan Krishnan

Temple University - Department of Accounting

Yinqi Zhang

American University

Date Written: March 1, 2005


The Securities and Exchange Commission (SEC) recently made timely reviews of quarterly financial statements mandatory for all registrants. The objective is to improve corporate quarterly reporting. However, formal review reports are not required to be included in 10-Q filings, and may not even be issued by auditors. A priori, one would expect these reports to be useful to investors if they imply added auditor diligence or if they contain modifications to the standard report. We find that only 5.7% of the companies in our sample attached the auditor's review report in their 10-Q filings. Also the majority of these reports are clean, suggesting that clients may not be disclosing the reports when they are modified. After controlling for factors such as auditor type, agency costs, capital market transactions, and company size, we find a significant negative association between auditor's litigation risk and disclosure of a review report. In addition, we find that the disclosure of a review report is associated with auditor type and company size.

Keywords: Voluntary Disclosure, Review Reports, Litigation Risk

JEL Classification: G38, M41, M45, M49

Suggested Citation

Krishnan, Jagan and Zhang, Yinqi, Auditor Litigation Risk and Corporate Disclosure of Quarterly Review Report (March 1, 2005). Auditing: A Journal of Practice & Theory, Vol. 24, Supplement, pp. 115-138, 2005, Available at SSRN:

Jagan Krishnan (Contact Author)

Temple University - Department of Accounting ( email )

Fox School of Business & Management
1801 Liacorous Walk
Philadelphia, PA 19122
United States
215-204-8126 (Phone)
215-204-5587 (Fax)

Yinqi Zhang

American University ( email )

4400 Massachusetts Ave NW
Washington, DC 20016
United States

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