Internal Audit and Financial Reporting Quality in the Public Sector

Steven DeSimone

No 1802, Working Papers from College of the Holy Cross, Department of Economics

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.

Keywords: Internal auditing; internal audit quality; external assessments; financial reporting quality; audit reportable conditions; restatements (search for similar items in EconPapers)
Pages: 48 pages
Date: 2018-04
New Economics Papers: this item is included in nep-acc
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Citations: View citations in EconPapers (2)

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