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Auditor Expertise: Evidence from the Public Sector

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  • Mark Schelker

Abstract

Public Auditors are fundamental institutions to supervise government agents. Without accurate information principals would find it hard to make adequate decisions. Since agents face strong incentives to misreport, competent audits of financial information are crucial. This paper is the first attempt to study the relationship between auditor expertise and fiscal performance. More competent auditors are more effective supervisors; they reduce the leeway of agents to misreport and improve fiscal outcomes. The empirical results support this hypothesis. I find that States requiring the auditor to hold a professional degree feature significantly lower debt and expenditures as well as higher credit ratings.

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Paper provided by Center for Research in Economics, Management and the Arts (CREMA) in its series CREMA Working Paper Series with number 2009-20.

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Date of creation: Aug 2009
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Handle: RePEc:cra:wpaper:2009-20

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Keywords: public auditor; auditor expertise; auditor competence;

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  1. Benjamin A. Olken, 2007. "Monitoring Corruption: Evidence from a Field Experiment in Indonesia," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115, pages 200-249.
  2. Craig Depken & Courtney Lafountain, 2006. "Fiscal consequences of public corruption: Empirical evidence from state bond ratings," Public Choice, Springer, Springer, vol. 126(1), pages 75-85, January.
  3. James E. Alt & David Dreyer Lassen & Shanna Rose, 2006. "The Causes of Fiscal Transparency: Evidence from the American States," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 06-02, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  4. Ferraz, Claudio & Finan, Frederico S., 2007. "Exposing Corrupt Politicians: The Effects of Brazil’s Publicly Released Audits on Electoral Outcomes," IZA Discussion Papers 2836, Institute for the Study of Labor (IZA).
  5. Mark Schelker, 2012. "The influence of auditor term length and term limits on US state general obligation bond ratings," Public Choice, Springer, Springer, vol. 150(1), pages 27-49, January.
  6. von Hagen, Jurgen & Wolff, Guntram B., 2006. "What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3259-3279, December.
  7. Schelker, Mark & Eichenberger, Reiner, 2010. "Auditors and fiscal policy: Empirical evidence on a little big institution," Journal of Comparative Economics, Elsevier, vol. 38(4), pages 357-380, December.
  8. Alt, James E. & Lassen, David Dreyer, 2006. "Fiscal transparency, political parties, and debt in OECD countries," European Economic Review, Elsevier, vol. 50(6), pages 1403-1439, August.
  9. Sattar A. Mansi & William F. Maxwell & Darius P. Miller, 2004. "Does Auditor Quality and Tenure Matter to Investors? Evidence from the Bond Market," Journal of Accounting Research, Wiley Blackwell, vol. 42(4), pages 755-793, 09.
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