The Influence of Institutional Regulatory Pressure on Nonprofit Hospital Audit Quality

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)1-23
Number of pages23
Journal / Publication Journal of Governmental & Nonprofit Accounting
Issue number1
Online published28 Nov 2018
Publication statusPublished - Dec 2018


This paper investigates whether the influence of institutional regulatory pressures emanating from the enactment of the Sarbanes-Oxley Act and subsequent nonprofit legislation and disclosure requirements improves nonprofit hospital audit quality. Drawing on institutional theory, we argue that increased regulatory attention can shift the audit firm’s judgment regarding the choice and inference of previously acceptable audit procedures and heighten the importance of reputational capital as an incentive for audit firms to improve audit quality. We examine two measures of audit quality, internal control deficiencies and discretionary accruals. The results reveal that the audit quality of nonprofit hospitals improves, suggesting that audit firms have responded to regulatory pressures and enhanced their audit and engagement practices for the benefit of nonprofit hospitals and stakeholders. The findings provide regulators and public interest groups with evidence that desired nonprofit oversight and accountability may have already been attained via improved audit quality.

Research Area(s)

  • audit quality, institutional theory, nonprofit hospitals, discretionary accruals, internal control deficiencies

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