Review of Quantitative Finance and Accounting, 14 (2000): 111±130
# 2000 Kluwer Academic Publishers, Boston. Manufactured in The Netherlands.
Would Switching to Timely Reviews Delay Quarterly
and Annual Earnings Releases?
University of Kansas
University of Notre Dame
DAVID B. SMITH
Iowa State University
University of Alabama
Abstract. The SEC recently issued a proposal to modernize and clarify the regulatory structure of securities
offerings. The proposal would allow companies to access capital markets on an almost continuous basis but would
require strengthening of the role of independent accountants and other gatekeepers in the registration process. The
Commission is seeking comment on whether it ``should add to the proposed practices the fact than an independent
accountant performed a timely review under SAS 71 of an issuer's quarterly ®nancial information'' (SEC, 1998,
p. 231). This is the most recent of several proposals, made by the SEC and others, that provides incentives for
companies to purchase quarter-end (timely) reviews of their quarterly data. Some managers who currently have
their quarterly earnings reviewed only at year-end (retrospective reviews) argue that having a timely review
would delay interim earnings releases. Proponents of timely reviews deny that this would occur, and assert that
shifting certain review procedures into interim periods would decrease the time needed to release annual earnings.
We estimate the quarterly and annual reporting lags that would occur if companies currently selecting
retrospective reviews switched to timely reviews. Our results indicate that quarterly earnings release lags would
increase, as opponents of mandatory timely review have argued. Switching to timely review would reduce annual
earnings release lags only when interim earnings contain unusual components.
Key words: interim reviews, earnings release lags, audit report lags, self-selection bias
Data availability: All but survey data are available from public sources.
Publicly-traded companies must ®le Form 10-Q quarterly ®nancial information with the
Securities and Exchange Commission (SEC) within forty-®ve days of the end of each of
the ®rst three quarters of the ®scal year, and ®le audited ®nancial statements, which
include unaudited quarterly data, within ninety days of year-end. The SEC encourages
companies to have ®nancial information reviewed by an auditor at the end of each quarter
Address correspondence to: David Smith, Department of Accounting, College of Business, Iowa State University,
Ames, IA, 50011-2063, USA.