The Effect of State Regulation on School District Auditor Choice and Reporting Quality

• In Event: Regulation, Audit Pressures, and Reporting

Abstract

A series of scandals discovered in New York school districts resulted in the passage of two legislative acts intended to increase competition within the school district audit market and improve audit quality. Among other provisions, the legislation requires that audits be awarded through a formal procurement process. The legislation also assigns oversight responsibility to the New York Office of the State Comptroller, whose auditors began performing their own internal control inspections at school districts as well as performing audit quality inspections at several independent accounting firms; these inspections occurred concurrently with annual independent audits. Following enactment of the legislation, the audit market became more concentrated, with greater usage of specialist audit firms and fewer small firms competing in the market. These changes also resulted in a significant increase in internal control exceptions reported by New York school districts.

Authors

• Alfred Yebba, Syracuse University

• Randal J. Elder, Syracuse University