Procurement practices and the municipality auditing market
Description
In this study, we perform a comprehensive analysis of municipal auditing, exploring its various stages: procurement, decisions on selection criteria, auditor selection, the rendering and payment of services, and the audit opinion provided. Our setting is Portugal, where external auditing of municipalities’ accounts has recently been introduced. Our dataset is unique, resulting from the merging of new survey data with non-publicly available data. We find that the majority of municipalities procure auditing services through direct selection and choose their auditors based on the lowest-price selection criterion. However, municipalities that employ a more sophisticated procurement process, where political competition is lower and citizens’ interest is higher, rely less frequently on the lowest-price criterion. The selected auditor is usually a firm (rather than an individual Certified Public Accountant [CPA]) and never one of the Big Four firms. The audit fee paid for auditing services is higher when the level of citizens’ interest increases, and lower when the municipality has an internal auditing office. Finally, when the auditor issues a qualified opinion, the audit fee is also higher.
Copyright Date
January 2016
Publication Date
1-1-2016
Keywords
Local government, Political competition, Lowest price selection criterion, Audit fees, Portugal
Conference
Annual meeting of the American Accounting Association, August 2016
