Abstract
We investigate the impact of covenant violations on audit report timeliness. We argue that the existence of covenant violations might motivate clients or banks to seek waivers or renegotiation's of current lending contracts. Otherwise, auditors might perform more audit tests before issuing audit opinions. Ultimately, auditors will increase the number of days to complete the audit. Our major findings are consistent with our prediction. In addition, we find that the presence of early covenant violations further increases audit delays. Our findings identify another factor affecting the audit report timeliness and one economic consequence of covenant violations.
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