Document Type
Working Paper
Date of This Version
7-1-2017
Keywords
internal auditing, internal audit quality, external assessments, financial reporting quality, audit reportable conditions, restatements
JEL Classification
G32, M4
Abstract
Using a unique set of hand-collected data, this study investigates the association of (1) the presence of an Internal Audit Function (IAF) and (2) the use of quality assurance programs for the IAF with financial reporting quality in public sector organizations. Specifically, I examine if the presence of IAFs and the use of quality assessments therein is associated with the presence of financial statement audit reportable conditions and restatements in municipalities in the U.S. Results indicate that both the presence of an IAF and use of external quality programs therein are positively associated with financial statement audit reportable conditions related to internal control (significant deficiencies). Findings also suggest that the presence of an IAF is negatively associated with restatements in U.S. municipalities with populations over 100,000 at significant levels. The use of quality assurance programs for the IAF has no effect on the occurrence of restatements. The study’s findings provide insights on IAF influence over financial statement reporting quality in the public sector and suggest further research is necessary. Results should be of interest to standard setters, regulators, and pubic-sector leadership as they attempt to improve governmental financial reporting quality and transparency.
Working Paper Number
1802
Recommended Citation
DeSimone, Steven M., "Internal Audit and Financial Reporting Quality in the Public Sector" (2017). Economics Department Working Papers. Paper 183.
https://crossworks.holycross.edu/econ_working_papers/183
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Accounting Commons, Business Law, Public Responsibility, and Ethics Commons, Corporate Finance Commons