Procurement practices and the municipality auditing market
Description
In this study, we conduct a comprehensive analysis of municipal auditing by examining its key stages: procurement, decisions regarding selection criteria, auditor selection, the rendering and payment of services, and the audit opinion provided. The empirical setting is Portugal, where external auditing of municipal accounts has been recently introduced. Our dataset is unique, combining newly collected survey data with non-publicly available information. We find that the majority of municipalities procure auditing services through direct selection and choose auditors based on the lowest-price criterion. However, municipalities that adopt more sophisticated procurement processes—particularly in environments characterized by lower political competition and higher levels of citizen engagement—are less likely to rely on the lowest-price criterion. The selected auditor is typically a firm rather than an individual Certified Public Accountant (CPA), and rarely belongs to one of the Big Four audit firms. We also observe that audit fees increase with higher levels of citizen interest and decrease when municipalities maintain an internal auditing office. Finally, when auditors issue qualified opinions, audit fees are significantly higher.
Copyright Date
January 2017
Publication Date
1-1-2017
Keywords
Local government, Political competition, Lowest price selection criterion, Audit fees, Portugal
Conference
Annual meeting of the Journal of Auditing, Accounting and Finance, June 2017, Dunedin, New Zealand
