Late for a Very Important Date: Financial Reporting and Audit Implications of Late 10-K Filings

Abstract

Delays in Securities and Exchange Commission (SEC) filings often reflect issues related to period-end financial reporting and audit processes. We investigate the impact of filing delays in connection with auditor characteristics on the quality of audited financial statements in a sample of firms that filed Form 10-K after the statutory due date. We find that late filing firms are associated with lower financial reporting quality compared to timely filing firms matched by propensity scores, where financial reporting quality is measured by the absolute value of performance-matched discretionary accruals and the probability of a late 10-K filing being restated in subsequent periods. We also find that late filing explanations disclosed on SEC Form 12b-25, Notification of Late Filing, reveal to some extent the issues faced by such firms. Furthermore, we demonstrate that the adverse consequences of late filings can be largely mitigated by having a Big 4 auditor. The differential audit quality stems primarily from Big 4 auditors in large offices, and is more pronounced in situations in which the auditor may need to draw on additional resources in a limited period of time. Overall, our findings suggest that the issues underlying a delinquent 10-K filing have adverse consequences for accounting/audit quality, and large Big 4 offices have both more in-house capacity and greater incentives for reputation protection to respond to the risk associated with late filers.

Keywords: Restatements, Office size, Late SEC filings, Financial reporting quality, Big 4 auditors, Accruals

JEL Classification: M41, M42, G34