Quarterly reporting timeliness as an early signal of reporting and internal control risk

Purpose This paper aims to explore the significance of quarterly report lag as a potential indicator of firms’ annual reporting timeliness and internal control issues, informing policymakers about the incremental value of quarterly reports beyond other well-documented attributes. Design/methodology/approach Following Blankley et al. (2014), the authors use a two-stage approach to estimate a quarterly lag model and then examine the incremental information embedded in the unexplained (abnormal) component of quarterly report lag (AQRL). Findings Based on a sample of the US firms from 2007 to 2023, the authors find that AQRL predicts annual report lag and positively relates to the likelihood of internal control weaknesses. Additional analysis shows that the informational value of AQRL is mainly concentrated among the firms with Big 4 auditors, suggesting that quarterly reporting delays are more informative when audit processes are more standardized and stringent. Originality/value This study responds to the call by Kajüter et al. (2022) that researchers should investigate the impact of quarterly reports on “the time needed to perform the annual audit,” contributing to both interim financial reporting and reporting timeliness literature streams. While prior research mainly focuses on the frequency, content and assurance of quarterly financial reporting, the authors concentrate on the timeliness aspect that conveys useful information about the auditor, the client and the reporting process.