Auditor monitoring and restatement dark period

Abstract

Purpose Prior research has examined the impact of corporate governance mechanisms, including external auditing, on accounting restatements likelihood. However, little is known about auditor’s monitoring role in restatement disclosure practices. The purpose of this study is to address this gap by investigating the impact of auditor’s oversight on the timeliness of accounting restatement disclosures as measured by the length of the restatement dark period. Design/methodology/approach The study examines panel data from a sample of restating publicly traded US firms. Negative binomial regression is used to analyze the data because the dependent variable is a count variable and is over-dispersed. Findings The main study’s results indicate that longer auditor tenure and non-audit services provision improve restatement disclosure timeliness. Conversely, companies whose auditors exerted abnormally high levels of audit effort have longer restatement dark periods. Originality/value This study is the first archival research that focuses on auditor’s monitoring role and its impact on the timeliness of restatement disclosures. By doing so, this study contributes to the auditing academic research, professional practice and regulation by providing empirical evidence on an exasperating issue for all participants in the financial markets. In addition, it provides a better understanding of auditor’s monitoring role in the accounting restatement process and offers insights to policymakers, practitioners and investors interested in corporate financial transparency and corporate governance.