Abstract
The interim reporting process provides decision-useful information to investors and market participants. However the legal circumstances of external interim auditor reviews differ worldwide. A mandatory review rule in the US as opposed to a contrary decision of the German legislator raises the question of the cost-benefit-relation of auditor reviews. Using a German sample of 1,023 firm-year observations from 2007 to 2010, I extract the costs and benefits of voluntary interim reviews. The unique German legal environment makes it possible to split the cost effect of a review in the price effect (included in audit-related fees) and a possible reduction of audit fees resulting from an improved year-around audit process. I observe a significant increase of audit and audit-related fees of around 14.5% (total fee effect) and declining audit fees for reviewed firms as compared to a matched sample. The effect on quarterly earnings quality shows no significant influence.
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