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The Association Between Auditors’ Management Letters and Financial Reporting Quality: An Empirical Study
Laurence E Johnson,
Colorado State University
Suzanne Lowensohn, Colorado State University
Jacqueline L Reck, University of South Florida
Stephen P Davies, Colorado State University
ABSTRACT: This paper reports a study of the association between management letter comments offered to local governments and the financial reporting quality of those governments as assessed by desk reviews of financial statements and audit reports. After controlling for certain characteristics of auditees and their auditors, regression analysis reveals a positive (negative) association between first-year (repeat) management letter comments and financial reporting quality. Our results suggest that regulatory requirements that management letters be issued in conjunction with local government audits reflect good policy.
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