In the absence of a strong audit committee, management can get an upper hand over auditors when it releases unaudited earnings results to the market, according to emerging academic research.
A new study out of Indiana University finds auditors, especially less experienced auditors, answering to only moderately effective audit committees feel some pressure to conform to management’s judgments when earnings releases are shared with investors before audits are complete. The study is based on a controlled experiment involving more than 100 “highly experienced” audit partners and senior managers to explore their audit judgments when management publishes preliminary earnings information before auditors are finished with their work.
