The Impact of Component Auditors’ Involvement in Multinational Group Audits on Timeliness of Client Earnings Announcements

This study investigates the relationship between the involvement of component auditors in multinational group audits and management’s decision when to announce annual earnings. By examining a research sample of U.S. multinational corporations during the period 2017 – 2023, I discover a positive association between the utilization of component auditors and both earnings announcement lag and firms' likelihood of releasing earnings after the audit report date, suggesting that using component auditors increases management's motivation to wait for auditor approval before announcing earnings, potentially due to enhanced audit quality. The second research objective of this study is to assess the differences, if any, between the use of component auditors and the timeliness of earnings announcements when the component auditor is affiliated or unaffiliated with the principal auditor. Specifically, I find that the use of network component auditors in multinational group audits is positively related to earnings announcement lag and the likelihood of a company releasing earnings after the audit report date. My findings withstand robustness testing. My cross-sectional tests indicate that a potential explanation for these findings is the role component auditors play in enhancing audit quality, thereby incentivising client managers to postpone the disclosure of earnings until the audit report date. Further cross-sectional tests indicate that geographic proximity between component auditors and principal auditors enhances the association between component auditor usage and earnings announcement timeliness, perhaps due to higher audit quality, while the engagement of component auditors in multinational group audits increases the likelihood of firms releasing earnings after the audit report date only before the COVID-19 pandemic. Quantile regression analysis indicates that the involvement of component auditors is positively related to earnings announcement lag if the total proportion of audit hours conducted by component auditors is less than approximately 28% of total audit hours, beyond which audit quality may be adversely affected. This thesis augments the growing literature on multinational group audits by enhancing understanding of how the participation of component auditors in multinational group audits impacts the timeliness of client earnings announcements. The study also aims to inform regulators’ understanding of how multinational group audits relate to the stock market and the financial reporting choices of client firms.