Do the auditors’ efforts in the review of interim financial information curb the annual analyst earnings forecast walkdown?

Analysts forecasts show a walkdown pattern in which optimism decreases as the earnings announcement date approaches. At the beginning of the year, there is a lack of high-quality benchmark information that enables information users to judge the accuracy of analysts’ earnings forecasts. As a result, at the beginning of the year, analysts are highly motivated to provide optimistic forecasts in order to curry favor with managers. Using Korean data, where it is mandatory to disclose auditors’ review hours, we document that the more time the auditor devotes to the review of interim financial information, the higher is the proportion of time spent on the review of interim financial information to total audit hours, and the lower is the analysts’ earnings forecast walkdown. This result implies that an auditor s effort in reviewing interim financial information has a monitoring function that reduces analysts opportunistic optimism at the beginning of the year.