The Introduction of State Regulation and Auditor Retendering in School Districts: Local Audit Market Structure, Audit Pricing, and Internal Controls Reporting

2019 ◽  
Vol 39 (2) ◽  
pp. 81-115
Author(s):  
Randal J. Elder ◽  
Alfred A. Yebba
Keyword(s):  
New York ◽  
School Districts ◽  
Internal Control ◽  
Small Firms ◽  
Audit Quality ◽  
New York State ◽  
Audit Fees ◽  
State Regulation ◽  
New York School ◽  
Audit Market

SUMMARY Scandals discovered in New York school districts resulted in two legislative acts designed to improve internal control systems and independent audit quality within the State's school district audit market. The legislation requires that audits be awarded through a formal requisitioning process (RFP), including optional rotation, every five years. The Office of the New York State Comptroller auditors also began performing internal control inspections at school districts and performing audit quality inspections of independent auditors. Post-regulation, the audit market became more concentrated, with greater usage of specialist audit firms and fewer small firms. Audit fees and audit report lag increased substantially and specialist auditors began earning a fee premium. We also find a significant increase in internal control exceptions reported by New York school districts and variation in the reporting of control deficiencies by auditor type.

scholarly journals PRACTITIONER SUMMARY The Introduction of State Regulation and Auditor Retendering in School Districts: Local Audit Market Structure, Audit Pricing, and Internal Control Reporting

2020 ◽  
Author(s):  
Randal J. Elder ◽  
Alfred A. Yebba
Keyword(s):  
School Districts ◽  
Market Structure ◽  
Internal Control ◽  
Audit Fees ◽  
State Regulation ◽  
Internal Controls ◽  
Quality Enhancement ◽  
Audit Pricing ◽  
Audit Market ◽  
Reporting Delays

The impacts of auditor retendering or rotation mandates and auditor selection has been a regulatory concern for some time. However, finding suitable research settings to examine these policies has been a challenge. This paper reports the results of a study (Elder and Yebba 2020) that explores the consequences of implementing a retendering policy in a local governmental audit market. The study finds an association between periodic retendering and auditor concentration, including the growth of fee premium specialization within the market. We also find changes in quality associated with these mandates, including greater auditor effort, evidenced through higher audit fees and longer reporting delays, and improved documentation of internal controls evidenced through increased reporting of control deficiencies. Collectively, we provide evidence that periodic retendering of audit services may provide a suitable level of quality enhancement while not forcing auditees to absorb audit inefficiencies common with a rotation policy.

Spatial Competition in Local Audit Markets and the Fallout on Deloitte from the 2007 PCAOB Censure

2016 ◽  
Vol 36 (2) ◽  
pp. 1-19 ◽  
Author(s):  
Jeff P. Boone ◽  
Inder K. Khurana ◽  
K. K. Raman
Keyword(s):  
Market Power ◽  
Audit Quality ◽  
Spatial Competition ◽  
Spatial Location ◽  
Audit Fees ◽  
Audit Market ◽  
Big 4 ◽  
Audit Fee ◽  
The Face ◽  
Market Leader

SUMMARY We examine whether Deloitte's spatial location in local audit markets affected the firm's adverse fallout—in terms of decreased ability to retain new clients and maintain audit fees—from the 2007 PCAOB censure. We motivate our inquiry by the notion that auditor-client alignment and auditor-closest-competitor distance can help differentiate the incumbent Big 4 auditor from other Big 4 auditors and thus provide market power, i.e., inhibit clients from shopping for another supplier because of the lack of a similar Big 4 provider in the local audit market. Consequently, it seems reasonable that the increase in switching risk and loss of fee growth suffered by Deloitte following the 2007 PCAOB censure will be lower in local markets where Deloitte was the market leader and its market share distance from its closest competitor was greater. Our findings suggest that the decline in Deloitte's audit fee growth rate following the 2007 PCAOB censure was concentrated in the pharmaceutical industry, although the client loss rate appears to have occurred more broadly (across all cities and industries). Collectively, our findings suggest that audit quality issues override auditor market power, i.e., differentiation does not provide Big 4 firms market power in the face of adverse regulatory action. JEL Classifications: G18; L51; M42; M49.

Audit Market Concentration, Audit Fees, and Audit Quality: Evidence from China

2015 ◽  
Vol 35 (2) ◽  
pp. 121-145 ◽  
Author(s):  
Ting-Chiao Huang ◽  
Hsihui Chang ◽  
Jeng-Ren Chiou
Keyword(s):  
Indirect Effect ◽  
Audit Quality ◽  
Earnings Quality ◽  
Audit Fees ◽  
Developed Countries ◽  
Market Concentration ◽  
Legal Environment ◽  
Positive Relation ◽  
Audit Market ◽  
Lower Likelihood

SUMMARY We investigate the effects of audit market concentration on audit fees and audit quality in China, where competition is intense and the legal environment is relatively weak compared with developed countries. Analyzing 12,334 firm-year observations for the period 2001 to 2011, we find a significant positive relation between concentration and audit fees. Path analysis shows that concentration improves client earnings quality and reduces the need for auditors to issue modified audit opinions through increased audit fees. Additional analysis indicates that the increased audit fees and client earnings quality resulting from increased concentration are associated with a lower likelihood of executives and auditors being sanctioned by regulators for audit failures. Together, our results suggest that concentration improves audit quality indirectly through increased audit fees and this positive indirect effect offsets the negative direct effect of concentration on audit quality. By separating the direct and the indirect effect of concentration on audit quality, our study would explain why previous studies that do not have a separation document mixed evidence. Our findings inform regulators that actions taken to eliminate the indirect effect of concentration, for example restricting the upper bound of audit fees, could produce unintended outcomes such as decreased audit quality.

Response of School Districts to the New York State Concussion Awareness and Management Act

2014 ◽  
Vol 95 (10) ◽  
pp. e66
Author(s):  
Maria Kajankova ◽  
Jennifer Oswald ◽  
Lauren Terranova ◽  
Anne Felicia Ambrose ◽  
Wayne Gordon
Keyword(s):  
New York ◽  
School Districts ◽  
New York State ◽  
York State

scholarly journals An ecological study of food desert prevalence and 4th grade academic achievement in New York State school districts

2014 ◽  
Vol 3 (3) ◽  
Author(s):  
Seth E. Frndak
Keyword(s):  
Academic Achievement ◽  
New York ◽  
School District ◽  
School Districts ◽  
Ecological Study ◽  
New York State ◽  
Food Deserts ◽  
Food Desert ◽  
Achievement Scores ◽  
York State

<p><em>Background</em>. This ecological study examines the relationship between food desert prevalence and academic achievement at the school district level. <br /><em>Design and methods.</em> Sample included 232 suburban and urban school districts in New York State. Multiple open-source databases were merged to obtain: 4th grade science, English and math scores, school district demographic composition (NYS Report Card), regional socioeconomic indicators (American Community Survey), school district quality (US Common Core of Data), and food desert data (USDA Food Desert Atlas). Multiple regression models assessed the percentage of variation in achievement scores explained by food desert variables, after controlling for additional predictors.<br /><em>Results</em>. The proportion of individuals living in food deserts significantly explained 4th grade achievement scores, after accounting for additional predictors. School districts with higher proportions of individuals living in food desert regions demonstrated lower 4th grade achievement across science, English and math. <em><br />Conclusions</em>. Food deserts appear to be related to academic achievement at the school district level among urban and suburban regions. Further research is needed to better understand how food access is associated with academic achievement at the individual level.</p>

scholarly journals Invisible inequality leads to punishing the poor and rewarding the rich

2019 ◽  
pp. 1-21 ◽  
Author(s):  
OLIVER P. HAUSER ◽  
GORDON T. KRAFT-TODD ◽  
DAVID G. RAND ◽  
MARTIN A. NOWAK ◽  
MICHAEL I. NORTON
Keyword(s):  
New York ◽  
Public Education ◽  
School Districts ◽  
New York School ◽  
Public Goods Game ◽  
Policy Makers ◽  
The Poor ◽  
The Us ◽  
The Rich ◽  
Shed Light

AbstractFour experiments examine how lack of awareness of inequality affect behaviour towards the rich and poor. In Experiment 1, participants who became aware that wealthy individuals donated a smaller percentage of their income switched from rewarding the wealthy to rewarding the poor. In Experiments 2 and 3, participants who played a public goods game – and were assigned incomes reflective of the US income distribution either at random or on merit – punished the poor (for small absolute contributions) and rewarded the rich (for large absolute contributions) when incomes were unknown; when incomes were revealed, participants punished the rich (for their low percentage of income contributed) and rewarded the poor (for their high percentage of income contributed). In Experiment 4, participants provided with public education contributions for five New York school districts levied additional taxes on mostly poorer school districts when incomes were unknown, but targeted wealthier districts when incomes were revealed. These results shed light on how income transparency shapes preferences for equity and redistribution. We discuss implications for policy-makers.

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