Determinants and Quality of Audits and Reviews of Small Charities’ Financial Statements

Abstract

Using a random sample of 500 small charities in 2014, we identify the determinants of voluntarily lodging their annual financial report, and the likelihood of including an assurance report. 110 small charities lodge their annual financial report, with 56 including an audit/review report. Sequential logistic regression shows that lodging charities are larger, with higher levels of government grants and use accrual accounting. Additional factors explaining the inclusion of an audit/review report are the charity’s deductible gift recipient status and again the use of accrual accounting. 53 of these assurance engagements are audits, with only 3 being reviews. Second, we examine audit quality for those 53 which submit an audit report, and identify significant audit quality concerns, with for example only 18 (34.0 percent) fully complying with ASA700, but no specific characteristics are significant. Tracing the 110 submitting charities from 2014 to 2018, we identify little change in assurance level.

Keywords: Small charity, Audit quality, Audit engagements, Review engagements, Auditor reporting, Audit fees, Audit report lag

JEL Classification: M41, M42, M48, L31