Who Cares About Nonprofit Financial Reporting Quality? Reactions to Misstatements and Internal Control Deficiencies
Jeffrey J. Burks
University of Notre Dame
July 24, 2014
In the nonprofit sector, there are questions about the inherent usefulness of financial reporting and the vigilance of the governance monitors who might use it. This study investigates how two types of monitors (donors and boards of directors) react to disclosure of accounting problems (accounting errors and internal control deficiencies). I find evidence of negative reactions by monitors to disclosures of accounting problems. Donations fall following disclosure of severe errors and internal control deficiencies. I find consistent (inconsistent) evidence that severe errors (internal control deficiencies) are associated with higher subsequent CFO turnover. Overall, the results are consistent with donors and boards being willing to take action in response to concerns about financial reporting quality, thus indicating that they consider financial reporting useful and that they act on signals of low quality.
Number of Pages in PDF File: 43
Keywords: nonprofit, public charities, financial reporting, accounting errors, restatements
JEL Classification: M40
Date posted: July 26, 2014
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