Does Hiring a Local Industry Specialist Auditor Matter to Nonprofit Organizations?

Abstract

We extend both the U.S. and European nonprofit auditor choice literature by examining the determinants as well as consequences of local industry specialist auditor choice within the nonprofit sector. In our determinants models, we find that local industry specialist auditors are associated with higher governance quality, poorer financial health, and greater complexity. In our consequences models, we find robust evidence that nonprofits audited by non-Big 4 local industry specialist auditors have shorter audit report lag and see more future direct donations than nonprofits audited by nonspecialist auditors and Big 4 auditors. Additional findings and implications are discussed.