Are Audit-Related Factors Associated with Financial Reporting Quality in Nonprofit Organizations?

Posted: 10 Apr 2017 Last revised: 6 Aug 2021

See all articles by Sarah Garven

Sarah Garven

Middle Tennessee State University

Amanda Beck

Georgia State University

Linda M. Parsons

University of Alabama - Culverhouse School of Accountancy

Date Written: April 6, 2017

Abstract

We examine the effects of several audit-related factors on nonprofit financial reporting quality (FRQ). Using four different measures of FRQ, we demonstrate that the findings of nonprofit accounting research might be sensitive to the choice of FRQ proxy. Nonetheless, we consistently find that specialist auditors and unexplained audit fees have a significant positive effect on FRQ in nonprofit organizations. Interestingly, we observe changes to FRQ in the period after the Sarbanes-Oxley Act of 2002, despite the fact the legislation does not apply to nonprofit audits. In fact, the results suggest nonprofits selected less obvious methods of ratio management post-SOX, compared to pre-SOX. Finally, we do not find that Big N auditors consistently provide the highest quality, a result very different from for-profit studies.

Keywords: program ratio management, nonprofit organizations, financial reporting quality, audit quality, A-133 audits, Sarbanes-Oxley Act

Suggested Citation

Garven, Sarah and Beck, Amanda and Parsons, Linda M., Are Audit-Related Factors Associated with Financial Reporting Quality in Nonprofit Organizations? (April 6, 2017). Garven, Sarah A., Amanda W. Beck, and Linda M. Parsons. "Are audit-related factors associated with financial reporting quality in nonprofit organizations?." Auditing: A Journal of Practice & Theory 37, no. 1 (2018): 49-68., Available at SSRN: https://ssrn.com/abstract=2948164 or http://dx.doi.org/10.2139/ssrn.2948164

Sarah Garven (Contact Author)

Middle Tennessee State University ( email )

Murfreesboro, TN 37130
United States

Amanda Beck

Georgia State University ( email )

P.O. Box 4050
Atlanta, GA 30302-4050
United States

Linda M. Parsons

University of Alabama - Culverhouse School of Accountancy ( email )

101 Paul W. Bryant Dr.
Box 870382
Tuscaloosa, AL 35487
United States

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