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The effect of changing fiscal year-ends on audit fees and audit quality

Author

Listed:
  • Angel Arturo Pacheco Paredes
  • Clark Wheatley

Abstract

Purpose - This study aims to extend recent research analyzing the effect of auditor busyness on audit quality. Specifically, this study explores the effect on audit quality of a change of fiscal year-end to or from an audit firm’s busy period. Design/methodology/approach - Empirical archival. Findings - When firms change their fiscal year-end to a period when the auditor is less busy, client firms are rewarded with lower audit fees and auditors are rewarded with a reduction in required effort. This study finds no difference in the level of audit quality after a change in fiscal year-end. Practical implications - There are significant implications for audit firms as they may gain cost advantages by successfully promoting off-season fiscal year-ends, and reduce the negative effect on employees associated with “busy season” stress. Similarly, client firms may find that audit costs are reduced when they adopt a less “busy” fiscal year-end. Social implications - These results have policy implications for regulators because regulators often dictate the fiscal year-end for certain industries or traded securities. Such dictates may thus introduce inefficiencies into the market for audit services. Originality/value - These results should guide regulators in their decisions to dictate fiscal year-ends and firms in their choice of reporting periods.

Suggested Citation

  • Angel Arturo Pacheco Paredes & Clark Wheatley, 2019. "The effect of changing fiscal year-ends on audit fees and audit quality," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 12(3), pages 365-382, November.
    • Handle: RePEc:eme:jfeppp:jfep-07-2019-0140
    DOI: 10.1108/JFEP-07-2019-0140
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    Citations

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    Cited by:

    1. Tereshchenko Maryna, 2020. "Conducting an audit using system modeling tools in the development of deposits of flux raw materials," Technology audit and production reserves, Socionet;Technology audit and production reserves, vol. 4(4(54)), pages 4-8.
    2. Knowles, Robin L & Pacheco Paredes, Angel Arturo, 2023. "International culture and audit deficiencies: Evidence from inspection reports of non-US companies listed in the US," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 51(C).

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