Unexpected Consequences: The Effects on Non-Accelerated Filers of an Accelerated Filing Deadline and SOX Section 404

SYNOPSIS Regulations implemented by the SEC in 2003 and 2004 simultaneously shortened the financial statement filing deadlines and increased the time required for both the preparation of financial statements and the related audit of accelerated filers (AFs). However, there were indirect, unintended negative consequences for companies not subject to the regulations, namely, non-accelerated filers (NAFs). The new regulations imposed strains on auditor resources requiring auditors to make resource allocation decisions that negatively affected NAFs. We find that NAFs with an auditor who had a high proportion of AF clients (high-AF) had longer audit delays after the regulations were implemented than NAFs of an auditor with a low proportion of AF clients (low-AF). Further, we document that NAFs with high-AF auditors were more likely to change auditors than NAFs with low-AF auditors. Finally, NAFs that switched to auditors with less AFs experienced shorter audit delays after the auditor change. JEL Classifications: M42; M48.