Melbourne Accounting Research Seminar - Ms Jenny Yang
Ms Jenny Yang from the University of NSW presented a MARS seminar. Ms Yang is participating in the MARS seminar series as part of a PhD exchange program.
Topic: The Impact of Auditing on the Quality of Large Charities' Financial Reporting
Abstract: I examine the impact of choice of auditor on large charities’ reporting quality with regard to the differential reporting framework applicable to Australian entities. I develop and test new accounting quality proxies and draw inferences from results by considering the strengths and weaknesses of each construct consistent with the call of DeFond and Zhang (2014). My new accounting quality proxies are: 1) inconsistency between the basis of financial reporting that identified by preparers and auditors; 2) extent of compliance with Auditing Standards related to reporting on special purpose financial statements; and 3) the acceptability of the reporting framework choice made by the charity in satisfying the users’ needs. Using Heckman two-stage estimation procedure and propensity score matching, my results generally support audit quality differentiation among Big 4 firms, national audit firms, and small audit firms. Further, the variations in my results regarding the first and third reporting quality measures reveal that Big 4 audit firms appear to be able to capture the more egregious undetected misstatements compared to national firms and small audit firms. As such, my findings reconcile the mixed results regarding quality differentiation of Big N audit firms in prior studies examining not-for-profit entities. My findings also provide insight into the interrelationship between audit quality and financial reporting quality by considering the distinct elements of each construct, responding to the call of Gaynor et al. (2016). In addition, my findings surrounding the use of a differential reporting framework in the charity sector is informative in providing a useful benchmark to academics, practitioners and regulators (Gilchrist and Simnett 2016, AASB 2017, ACNC 2015).