Differences in Quality Size affects compliance with GAAP. BY JAGAN KRISHNAN AND PAUL C. SCHAUER We measured quality as the degree to which the client complied with GAAP disclosure requirements for (1) investments, (2) valuation of fixed assets, (3) depreciation of fixed assets, (4) form of audit report, (5) cash donations and pledges, (6) donated materials and services, (7) presentation of statement of functional expenses and (8) presentation of balance sheet and other statements. We hypothesized that not complying with GAAP disclosure requirements was likely to be associated directly with poor audit quality, and that compliance with GAAP would increase as the firms size increased. Our study used data from audits conducted prior to the issuance of three pronouncements on not-for-profit organizations, which FASB released in response to known inconsistent reporting by these entities. The results indicated that 83% of the sample treated at least six of the eight GAAP items correctly. Noncompliance was highest for pledges and donated materials. However, noncompliance differed across audit firms of different sizescompliance increased from the small firms to the firms with more than 10 professionals and from such firms to the Big 6. This positive association between audit firm size and compliance with GAAP disclosure requirements, as a measure of audit quality, holds even after controlling for other factors relating to quality, such as the clients size, financial health, wealth and participation in peer review. The results of our study indicated that smaller firms might need to strengthen the quality control functions of their audits in order to improve compliance, particularly in audits with industry-specific requirements, such as those for voluntary health and welfare organizations.
For the full text of the research paper, see Auditing:
A Journal of Practice & Theory, Fall 2000, vol.
19, no. 2. JAGAN KRISHNAN, PhD, is a chartered accountant and associate professor of accounting, Temple University, Philadelphia. His e-mail address is krish@vm.temple.edu . PAUL C. SCHAUER, CPA, PhD, is a certified information systems auditor and assistant professor of accounting, Bowling Green State University, Ohio. Independence and Independent boards might prefer generic
BY MARK S. BEASLEY AND KATHY R. PETRONI We examined 681 property-liability insurers and found that after controlling for insurer size, organizational structure, financial condition and geographic dispersion, as well as other variables, the likelihood an insurer would use a specialist Big 6 auditor increased as the percentage of outsiders on the board of directors increased. However, we did not find an association between a boards composition and its choice of either a nonspecialist Big 6 or other auditor. This suggests that in a specialized industry, such as insurance, independent boards of directors might find the distinction between specialist and nonspecialist auditors more important than that between Big 6 and other auditors. For the full text of the research paper, see
Auditing: A Journal of Practice & Theory,
Spring 2001, vol. 20, no. 1. MARK S. BEASLEY, CPA, PhD, is associate professor of accounting at North Carolina State University, Raleigh. His e-mail address is mark_beasley@ncsu.edu . KATHY R. PETRONI, PhD, is associate professor of accounting at Michigan State University, East Lansing.
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