Bringing Darkness to Light: The Influence of Auditor Quality and Audit Committee Expertise on the Timeliness of Financial Statement Restatement Disclosures

Abstract

This study investigates whether auditor quality and audit committee expertise are associated with improved financial disclosure timeliness as measured by the duration of a financial statement restatement’s “dark period.” The restatement dark period represents the length of time between a company’s discovery that it will need to restate financial data and the subsequent disclosure of the restatement’s effect on earnings. For a sample of dark restatements disclosed during 2004–2009, we find that companies that engage Big 4 auditors have shorter dark periods than companies that do not engage Big 4 auditors. We also find that companies with more financial experts on the audit committee have shorter dark periods, particularly when such financial expertise relates specifically to accounting. Finally, companies with audit committee chairs that have accounting financial expertise have the greatest improvement in disclosure timeliness, as the dark periods for these firms are reduced by roughly 50%. Our results suggest that both auditor and audit committee expertise are important in facilitating the timely disclosure of restatement details.