Client Deadline Concentration in Audit Offices and Audit Quality

Abstract

This research investigates the effect on audit quality of concentrated public company financial statement filing deadlines in audit offices. Audit offices must effectively manage their resources to meet their clients’ audit service demands. For audit offices with clients that have filing deadlines concentrated in time, resource management is of greater importance because, when constrained or not managed effectively, resources can impair audit quality. We draw on the resource constraints and multiple project resource allocation literatures in auditing and management, respectively, to hypothesize that audit quality is lower when an audit office’s clients’ financial statement deadlines concentrate in time, which we term client deadline concentration. Using multiple proxies for audit quality, we find an economically significant negative association between an audit office’s client deadline concentration and audit quality. This significant effect is incremental to the effects of other resource-based constraints from the prior literature and to controls for unobservable differences in audit offices that explain a significant amount of the variation in audit quality outcomes. In light of our findings, audit offices might more carefully consider the relative timing of client deadlines when accepting or continuing client engagements and when making resource-related decisions.