Does Partner Public Company Auditing Experience Affect the Audit Outcomes of Nonprofit Clients?

• In Event: Not-For-Profit Audit

Abstract

This paper examines whether there are spillover effects at the audit partner level on nonprofit audits from the audits of publicly traded companies. Specifically, we examine the effects of public-company audit experience on the audit and financial reporting quality of nonprofit organizations. This experience could improve audit partners’ internal control reporting as a result of Section 404(b) experience and increase conservatism. However, knowledge obtained on public company audits may not translate directly to the needs of nonprofit audits, and strains on resource allocations between the two types of clients could reduce nonprofit audit and financial reporting quality. It is also possible that audit partners that also audit public companies do not differ substantially from those partners who focus only on nonprofit and private company audits. Analysis of 2014-2017 Single Audits shows that organizations audited by audit partners who also audit public companies are less likely to receive adverse internal control over financial reporting, major programs, and material noncompliance reports and less likely to misreport fundraising expenses, but are more likely to receive going concern modified audit opinions. In addition, audit partners who audit public companies take significantly longer to issue audit reports as compared to audit partners that do not audit public companies. These findings should be of interest to nonprofit organizations and their stakeholders, as well as audit firms and audit regulators.

Authors

• Aleksandra B Zimmerman, Northern Illinois University

• Stefanie Tate, University of Massachusetts Lowell

• Colleen M Boland, University of Wisconsin-Milwaukee