Filing Deadline Research Articles

Accelerated Filing Deadlines, Internal Controls, and Financial Statement Quality: The Case of Originating Misstatements

SYNOPSIS We examine whether regulations requiring accelerated filing deadlines and internal control reporting and testing affect financial statement reliability. Unlike prior research, we examine whether these regulatory changes are associated with an increase in the likelihood that misstatements originate in the period following the respective change. If the implementation of these rules causes a misstatement, then the misstatement would most likely occur in the period immediately following the rule change. We provide evidence that accelerated filers (AFs) experience an increase in the likelihood of an originating misstatement following the acceleration of filing deadlines from 90 to 75 days. Large accelerated filers (LAFs), however, do not experience a similar increase following this acceleration or the subsequent acceleration from 75 to 60 days. After the implementation of the SOX Section 404 internal control requirements, we find that the likelihood of an originating misstatement declined for AFs but not for LAFs. Taken together, the findings suggest that, although AFs experienced an initial decrease in financial statement reliability, this decrease was temporary. Data Availability: Data are publicly available from the sources identified in the text.

Lives in the Balance: Asylum Adjudication by the Department of Homeland Security

List of Figures and Tables Acknowledgments Introduction 1. Seeking Refuge 2. The Applicants and the Adjudicators 3. The One-Year Filing Deadline 4. Timeliness 5. The Rejections 6. Four Eras of Asylum Adjudication: Grant Rates over Time 7. Perceptions about the Asylum Seekers 8. Variations across the Regional Asylum Offices 9. Disparities within Asylum Offices 10. The Asylum Officers 11. Conclusions Appendix: Catchment Areas of the Eight Regional Asylum Offices Notes Index About the Authors

The Timeliness of UK Private Company Financial Reporting: Regulatory and Economic Influences

This paper investigates the effects of both regulation and economic demand on the timeliness of UK private companies’ accounting information. We study companies’ response to a one-month shortening of the statutory filing deadline and hypothesise that companies using accounting to communicate financial information to outside capital providers will be timelier in filing their accounts and less affected by the regulatory change than firms preparing accounts for tax and compliance purposes. Our results indicate that companies producing accounting information for reporting to outside investors publish their accounts significantly more quickly than those filing for compliance/tax reasons, though the change in regulation significantly affects both types of companies. We find a reduction in the average filing time, though the proportion of firms filing late increases after the regulatory change. In addition to incurring financial and non-financial penalties, filing after the statutory limit has important economic consequences because our results show that firms filing late have significantly lower credit ratings. We conclude that both regulatory and fundamental factors are important in private company financial reporting and that the two are sometimes interdependent.

Regulating the timing of disclosure: Insights from the acceleration of 10-K filing deadlines

We study the effects of regulating the timing of disclosure on the quality of accounting information, using a 2003 US regulatory change that accelerates 10-K filing deadlines as a research setting. Employing a difference-in-differences design, we find that the likelihood of issuing financial statements that are later restated increases for firms that are required to file more quickly, relative to firms whose filing practices are not affected by the regulatory change. This effect is particularly pronounced during the audit busy season, when auditors also face significant time pressure. These results are consistent with a tradeoff between how quickly accounting reports are required to be filed and the reliability of the resulting reports.

Enforcement mechanisms for SEC reporting deadlines

SEC filing deadlines accelerated for many firms over the past decade; nevertheless, the percentage of late 10-K filings has decreased by historical standards. From 2000 to 2007, six percent of 10-Ks are late but remain SEC compliant (via a Form 12b-25 filing). An additional 2.5 percent of all 10-K filings are both late and non-compliant. When analyzing all 10-K filings (i.e., both timely and late filings), we find that (1) relatively large stock exchanges, (2) greater analyst coverage, and (3) larger audit firms are each associated with improved timeliness and compliance in 10-K report filings.

Taxpayer Search for Information: Implications for Rational Attention

We examine novel data on searches for capital-gains-tax-related information to determine when and how taxpayers acquire information. We find strong seasonal increases in information search around tax filing deadlines, suggesting that taxpayers seek information to comply with tax law. Positive correlations between stock market activity and information search and year-end spikes in information search on capital losses suggest that taxpayers seek information for tax planning purposes. Policy changes and news events cause noteworthy information search. Overall, these data suggest that taxpayers are not always fully informed, but that rational attention and exogenous shocks to tax salience drive taxpayer information search.

Internal Audit Assistance and External Audit Timeliness

SUMMARY Professional standards guide external auditors to consider the effect of the client's internal audit work and opportunities to utilize the direct assistance of the internal audit function when planning and conducting audits. We examine the effect of internal audit assistance on external audit timeliness via the extent of external audit delay. We hypothesize and find that internal audit assistance is negatively associated with external audit delay. We also document moderating relationships between internal audit assistance and other internal audit environment characteristics, such as the extent of internal control reliance, coordination with the external auditor, and the investment in internal audit quality. Overall, our findings have implications for firms and external auditors who are evaluating the role and use of internal audit functions. Namely, our findings suggest that internal audit assistance may not only result in audit cost savings, but also in greater audit efficiencies. These findings are particularly germane given the challenges faced by external auditors in the form of greater audit requirements, shorter regulatory filing deadlines, resource constraints, and audit fee pressures.

The Failure to Remediate Previously Disclosed Material Weaknesses in Internal Controls

SUMMARY In this paper, we study a sample of companies that fail to remediate previously disclosed material weaknesses (MWs) in their internal control systems and, thus, disclose the same MWs in two consecutive annual reports. Their failure to remediate is surprising given that regulators, credit rating agencies, and academics contend that the remediation of MWs is important. We form a control sample of companies that initially disclosed MWs in their internal control systems, but subsequently remediated these weaknesses, and investigate the characteristics of the remediated and unremediated MWs, the characteristics of remediating versus non-remediating companies, and the consequences to non-remediating companies. Regarding the characteristics of companies failing to remediate, we find that companies are less likely to remediate previously disclosed MWs when the weaknesses are more pervasive (i.e., when they are described as at the entity level, when there are more individual weaknesses) and when their operations are more complex (i.e., they have more segments and have foreign operations). In addition, companies with smaller audit committees are less likely to remediate. Regarding the consequences, we find that companies failing to remediate MWs experience larger increases in audit fees and a higher likelihood of auditor resignation as the number of MWs increases. We also find that non-remediating companies are more likely to receive modified audit opinions and going-concern opinions. Finally, we find that companies failing to remediate are more likely to miss filing deadlines and experience increased cost of debt capital (i.e., they receive poorer credit ratings when entity level MWs are present, and are charged higher interest rates). Data Availability: Data are publicly available from sources identified in the text.

The Failure to Remediate Previously-Disclosed Material Weaknesses in Internal Controls

In this paper, we study a sample of companies that fail to remediate previously-disclosed material weaknesses (MWs) in their internal control systems and thus disclose the same MWs in two consecutive annual reports. Their failure to remediate is surprising given that regulators, credit rating agencies, and academics contend that the remediation of MWs is important. We form a control sample of companies that initially disclosed MWs in their internal control systems but subsequently remediated these weaknesses, and investigate the characteristics of the remediated and unremediated MWs, the characteristics of remediating versus non-remediating companies, and the consequences to non-remediating companies. Regarding the characteristics of companies failing to remediate, we find that companies are less likely to remediate previously-disclosed MWs when the weaknesses are more pervasive (i.e., when they are described as at the entity level, when there are more individual weaknesses) and when their operations are more complex (i.e., they have more segments and have foreign operations). In addition, companies with smaller audit committees are less likely to remediate. Regarding the consequences, we find that companies failing to remediate MWs experience larger increases in audit fees and a higher likelihood of auditor resignation as the number of MWs increases. We also find that non-remediating companies are more likely to receive modified audit opinions and going concern opinions. Finally, we find that companies failing to remediate are more likely to miss filing deadlines and experience increased cost of debt capital (i.e., they receive poorer credit ratings when entity level MWs are present and are charged higher interest rates).

Did accelerated filing requirements and SOX Section 404 affect the timeliness of 10-K filings?

This paper examines the effect of Sarbanes-Oxley provisions on 10-K filing delays. We find that tightened filing deadlines for accelerated and large accelerated filers are not associated with changes in the incidence of late filing. While Section 404 compliance does not affect filing timeliness for firms with effective internal controls, we find that about half the firms disclosing internal control weaknesses are late filers. As a consequence, many Section 404 material weakness firms experience negative abnormal returns around late filing notifications before filing the 10-K. Lastly, we find that market reactions to late filing notifications are more negative when management provides no meaningful explanation for the delay, consistent with managers’ incentives to withhold bad news.

Has Form 8-K reporting become timelier post-regulation fair disclosure and the Sarbanes–Oxley Act? Initial evidence

Our paper examines the timeliness of Form 8-K filings immediately after significant US regulation and legislation. Our events are issuance of regulation fair disclosure by the SEC and Congress’s passage of the Sarbanes–Oxley Act. We use Carter and Soo’s (1999) sample from 1993 for the pre-SOX and pre-FD data. For all firms that filed an 8-K in the sample periods, the post-FD sample filings are timelier than the pre-FD sample, and the post-SOX filings are more timely than most of the post-FD filings. For large firms, the post-SOX sample has significantly shorter filing lags in most cases relative to the post-FD sample, but we only find weak evidence of the shorter filing lags resulting in improved compliance with stated Form 8-K filing deadlines. We conclude that management reporting behavior has positively changed post-SOX, but that the results are less conclusive post-FD.

Regulating the Timing of Disclosure: Insights from the Acceleration of 10-K Filing Deadlines

We study the effects of regulating the timing of disclosure on the quality of accounting information, using a 2003 U.S. regulatory change that accelerates 10-K filing deadlines as a research setting. Employing a difference-in-differences design, we find that the likelihood of issuing financial statements that are later restated increases for firms that are required to file more quickly, relative to firms whose filing practices are not affected by the regulatory change. This effect is particularly pronounced during the audit busy season, when auditors also face significant time pressure. These results are consistent with a tradeoff between how quickly accounting reports are required to be filed and the reliability of the resulting reports.

'Roth' and Traditional Tax-Deferred Investing: Asset Location, Conversion and Re-Characterization Options

In this project the principal investigators plan to explore the impact of Roth IRA investing upon optimal asset location as well as the value of various types of tax-deferred wealth. The interest in Roth IRAs is likely to accelerate with the elimination next year of income caps that currently prevent high income investors (many of whom have substantial tax-deferred balances) from converting to the Roth form. A key feature associated with the conversion option to convert a traditional IRA to a Roth IRA is the “re-characterization” option that allows the investor to reverse his conversion until his tax filing deadline during the following year (which is as long as 21.5 months), creating strong incentives to hold very volatile investments in situations subject to the potential for re-characterization. This is in sharp contrast with the traditional advice associated with tax-deferred investing, i.e., to hold high-yields assets in tax-deferred account. Our work will link the exercise of the re-characterization option to past performance as the investor will optimally re-characterize all but the strongest performing accounts since conversion. Under some circumstances (for example, if the option is far out-of-the-money) it would be optimal to exercise the re-characterization option prior to its maturity in order to lengthen the subsequent conversion option. We plan to analyze this compound option and characterize the optimal exercise boundary as a function of time and the extent of appreciation or depreciation since conversion. The ability to re-characterize highlights the centrality of the conversion option by making it optimal for the investor to always convert, as the investor can re-characterize as needed. This work builds from and contrasts with earlier research that addressed issues involving taxable and tax-deferred investing simultaneously, but which did not distinguish between Roth and traditional tax-deferred investing.

Market Reaction to Auditor Switching from Big 4 to Third-Tier Small Accounting Firms

SUMMARY: After the demise of Arthur Andersen, the public accounting industry has witnessed a significant migration of public clients to second-tier (Grant Thornton and BDO Seidman) and smaller third-tier accounting firms. While prior literature documents that smaller auditors are perceived by the stock market as an inferior substitute for a Big 4 auditor, this perception appears to have changed in recent years. In this paper, we analyze market responses to auditor switching from Big 4 to smaller accounting firms during 2002 to 2006. We break our sample period into two separate periods (Periods 1 and 2) based on when regulatory changes occurred. These changes included Sarbanes-Oxley (SOX) 404 implementation, Public Company Accounting Oversight Board (PCAOB) inspections, and a tightened Form 8-K filing deadline. We find a relatively more positive stock market reaction to clients switching from a Big 4 to a smaller third-tier auditor in Period 2. This relatively more positive reaction in Period 2 reflects companies seeking better services rather than a lower audit fee, when an audit quality drop is less likely. Overall, our results suggest that companies and investors have become more receptive to smaller accounting firms.

Taxation of Trusts in Israel: trustee's reporting obligations

The Israeli Taxation of Trusts Law, effective as of 1 January 2006 (the ‘Law’) has taken a while to be implemented. Due to recurring postponements, mainly resulting from the Israeli Tax Authority’s preparation for the implementation of the Law, the last and final filing deadline was 31 December 2009. The reporting for 31 December 2009 relates to the years 2006–2008. During the current 2010 year (April 2010) the filing of reports for the year 2009 is required. Although the deadline of 31 December 2009 has passed, it is possible that an extension may be granted if the circumstances require. The Law imposes reporting and tax obligations on the trustee of each trust. This fact is irrespective of the jurisdiction of residency or jurisdiction of business activities of the trustee. In other words, all trustees, worldwide, of trusts that have a certain connection to Israel, are subject to the Law, based...

Retirement Investing: Analyzing the 'Roth' Conversion and Re-Characterization Options

The paper explores a rich example of the importance of tax options for investment management. Starting in 2010, all individuals, regardless of income level, can convert their “traditional IRAs” into “Roth IRAs” by paying ordinary income tax on the market value (at the time of conversion) of the assets being converted. In particular, even individuals with the largest tax-deferred accounts can convert some or all of their tax-deferred holdings to Roth IRAs, prepaying the ordinary income tax. The U.S. tax law also permits investors to reverse or “re-characterize” these conversions at an individual account level until the final income tax filing deadline for that tax year (i.e., October 15th of the following year). The resulting opportunities are very different than for traditional tax-deferred investments. We examine the costs and benefits of converting to a Roth IRA from a traditional tax-deferred account and analyze the optimal conversion decisions by investors absent the re-characterization option. We then allow the investor to reverse (re-characterize) these conversions decisions and examine the implications for asset location. The insights that arise with respect to optimal conversion go beyond the conventional wisdom, such as converting if and only if the investor’s current tax rate is below his anticipated future tax rate. Volatility is very valuable for positions that are subject to potential re-characterization, which is in sharp contrast to the traditional asset location advice. Re-characterization leads to substantial optionality for investments in certain tax-deferred accounts. These perspectives raise interesting challenges for understanding the stochastic and dynamic structure of government revenue.

The Smallpox Vaccine Injury Compensation Program

In January 2003, the Secretary of the US Department of Health and Human Services (DHHS) announced that certain individuals should receive smallpox vaccine or other countermeasures to be prepared to serve the civilian population in the event of a smallpox bioterrorism event. In April 2003, Congress passed and the President signed the Smallpox Emergency Personnel Protection Act of 2003. This act created the Smallpox Vaccine Injury Compensation Program to provide medical and lost employment income coverage as a payer of last resort to persons who sustain a covered medical injury as a direct result of receiving smallpox vaccination voluntarily under a DHHS-approved smallpox emergency response plan. As of September 2006, 62 persons had requested benefits, of whom 19 had been determined to be medically eligible, 27 were denied benefits, and 16 submitted the request after the legislatively defined filing deadline.

The Impact of SOX Section 404 Internal Control Quality Assessment on Audit Delay in the SOX Era

This study analyzes the impact of internal control quality on audit delay following the implementation of the Sarbanes-Oxley Act (2002) (SOX). Unlike prior studies of audit delay that obtain information about internal control strength via surveys, or use fairly crude proxies for internal control quality, our study employs external auditor assessments of internal control over financial reporting (ICOFR) that are publicly disclosed in SEC 10-K filings under SOX Section 404. Thus, the empirical evidence provided in this study is both timely and reliable (i.e., not subject to small sample bias or weak proxies). Consistent with our expectation, we find that the presence of material weakness in ICOFR is associated with longer delays. The types of material weakness also matter. Compared to specific material weakness, general material weakness is associated with longer delays. Additional analyses indicate that companies with control problems in personnel, process and procedure, segregation of duties, and closing process experience longer delays. After controlling for other impact factors, this study also documents a significant increase in audit delay associated with the fulfillment of the SOX Section 404 ICOFR assessment requirement. This suggests that Section 404 assessments have made it more difficult for firms to comply with the SEC's desire to shorten 10-K filing deadlines. Our finding thus supports and helps explain the SEC's decisions in 2004 and 2005 to defer scheduled reductions in 10-K filing deadlines (from 75 days to 60 days) for large, accelerated filers.

Strategies for Simplifying and Increasing the Effectiveness of Wealth Management

The ongoing demands of managing significant wealth can be overwhelming. In addition to performing high-level tasks, such as creating an investment policy and a charitable giving strategy, high net worth individuals and family office executives routinely contend with tax filing deadlines, recordkeeping responsibilities, and the coordination of multiple advisors. Developing and adhering to a long-term plan and an annual timetable, however, can mitigate the burden of wealth management, improve decision-making, and potentially avoid costly mistakes. This article details steps that wealthy individuals and their advisors can take to increase the efficiency and effectiveness of their wealth management efforts. For large families, these guidelines may also provide a framework for bringing family members together on a regular basis to review and update goals, investment strategies, and estate plans.

The Impact of Internal Control Quality on Audit Delay in the Sox Era

This study analyzes the impact of internal control quality on audit delay following the implementation of the Sarbanes-Oxley Act (2002) (SOX). Unlike prior studies of audit delay that obtain information about internal control strength via surveys, or use fairly crude proxies for internal control quality, our study employs external auditor assessments of internal control over financial reporting (ICOFR) that are publicly disclosed in SEC 10-K filings under SOX Section 404. Thus, the empirical evidence provided in this study is both timely and reliable (i.e. not subject to small sample bias or weak proxies). Consistent with our expectation, we find that the presence of material weakness in ICOFR is associated with longer delays. The types of material weakness also matter. Compared to specific material weakness, general material weakness is associated with longer delays. Additional analyses indicate that companies with control problems in personnel, process and procedure, segregation of duties, and closing process experience longer delays. After controlling for other impact factors, this study also documents a significant increase in audit delay associated with the fulfillment of the SOX Section 404 ICOFR assessment requirement. This suggests that Section 404 assessments have made it more difficult for firms to comply with the SEC's desire to shorten 10-K filing deadlines. Our finding thus supports and helps explain the SEC's decisions in 2004 and 2005 to defer scheduled reductions in 10-K filing deadlines (from 75 days to 60 days) for large, accelerated filers.