THE EFFECT OF AUDITOR INVOLVEMENT ON THE PREDICTIVE CAPACITY OF INTERIM FINANCIAL INFORMATION

Considerable controversy has arisen over auditor involvement with interim financial statements. The Securities and Exchange Commission (SEC) has taken an aggressive stance towards the advocacy of auditor involvement. The Commission cited anticipated improvements in the predictive capacity of interim...

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Bibliographic Details
Published in:Journal of business finance & accounting 1983-09, Vol.10 (3), p.429-441
Main Author: Edmonds, Thomas P.
Format: Article
Language:English
Subjects:
Annual reports
Auditors
Effects
Form 10-Q
Hypotheses
Predictions
SEC filing requirements
Studies
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Summary:Considerable controversy has arisen over auditor involvement with interim financial statements. The Securities and Exchange Commission (SEC) has taken an aggressive stance towards the advocacy of auditor involvement. The Commission cited anticipated improvements in the predictive capacity of interim data as justification for such advocacy. This study found evidence contrary to the expectations of the SEC. Earnings per share forecast errors generated through naive predictor models did not differ significantly when auditor involvement was introduced as in input segregation criterih. Accordingly, the data suggest that auditor involvement does not affect the predictive content of interim statements. In view of the finding of the study the author recommends a reassessment of the cost/benefit structure associated with auditor involvement in interim financial statements.
ISSN:0306-686X
1468-5957
DOI:10.1111/j.1468-5957.1983.tb00443.x