The Sentinel Effect and Audit Quality in the Healthcare Industry

• In Event: Continental Breakfast & Research and Education Forum
  In Paper Session: Table 8: Audit Quality

Abstract

The sentinel effect posits that the perception of increased oversight is associated with improved behavior. This paper examines the association between enhanced government oversight and external audit quality. Specifically, we examine the level of pending criminal cases against health care providers and a key discretionary accrual in the health care industry: The ratio of the allowance for doubtful accounts to total receivables. The use of this ratio allows us to focus directly on an accrual that requires extensive judgment, and has been shown to be linked to health care earnings management. The results of this study find that heightened governmental oversight is associated with reduced earnings management and improved audit quality. Additionally, results of this study contribute to the industry specialization literature by demonstrating that market leadership is associated with improved audit quality.

Authors

• Jared Koreff, University of Central Florida

• Sean WG Robb, University of Central Florida

• Gregory M Trompeter, University of Central Florida