No one wants to be the bearer of bad news. Deferred financial reporting can lead investors and lenders to presume that the company’s performance has fallen below historical levels or what was forecast at the beginning of the year. Some companies also may procrastinate issuing financial statements if they’re at risk of violating their lending covenants.
Alternatively, stakeholders may assume that management is incompetent or disorganized and can’t pull together the requisite data to finish the financials. For example, late financials may be common when a controller is inexperienced, the accounting department is understaffed or a major accounting rule change has gone into effect. Delays also may happen when external auditors and managers are at odds over adjusting journal entries — or when auditors are unwilling to issue an unqualified (clean) opinion or have going concern issues.
Delayed statements may also signal that management doesn’t consider financial reporting a priority. This lackadaisical mindset implies that no one is monitoring financial performance throughout the year.
If financial statements aren’t timely or prioritized by the company’s owners, unscrupulous employees may see it as a golden opportunity to steal from the company. Fraud is more difficult to hide if you insist on timely financial statements and take the time to review them.