Seasonal Workload Compression Affects

The Effect of Workload Compression on Audit Quality

Dennis M. López-Acevedo*
PhD Candidate
Sam M. Walton College of Business
University of Arkansas

ABSTRACT: This paper investigates whether seasonal workload compression affects audit quality.   Using 52,672 firm-year observations over the period 1990-2000, we estimate discretionary accruals (Jones 1991) as a proxy for earnings management and concomitant audit quality. We find that workload compressed audits display greater magnitudes of discretionary accruals. The results are consistent with compressed workloads impairing audit quality, thus giving client’s more freedom to manage earnings.  We also find that workload compressed firms with income-increasing (income-decreasing) earnings management are able to book more positive (negative) discretionary accruals.  The results of this study have implications for regulation that either compresses the audit process or alternatively spreads auditors’ workload over the course of the year. Recent examples of such regulation include the SEC’s accelerated filing requirements.


Key Words: Audit Quality, Earnings Management, Workload Compression, Discretionary Accruals

Draft: November 15, 2005

*Please direct comments and suggestions to Dennis M. López-Acevedo, University of Arkansas, Department of Accounting, 401 Sam M. Walton College of Business, Fayetteville, AR 72701.
Email:; Phone: 479-575-612; Fax 479-575-2863.

This paper is based on my doctoral dissertation at the University of Arkansas.   My doctoral dissertation committee consists of Carolyn M. Callahan (Chairperson), Gary F. Peters, and Gary Ferrier.
I. Introduction
This study investigates the effects of workload compression demands on the quality of audited financial statements.   Recent high profile audit failures have highlighted the importance of the auditors’ oversight function in the financial reporting process.   Using empirical data I find that audits performed under...