The Influence of Institutional Regulatory Pressure on Nonprofit Hospital Audit Quality

What is it about?

This study contributes to the extant literature by investigating whether regulatory and institutional pressures influence compliance with professionally endorsed accounting and auditing practices. Although prior research has examined changes in the audit quality of publicly traded companies after the enactment of SOX, limited evidence is available for understanding the effect of increased regulatory attention on the audit quality of nonprofit organizations. Such evidence is essential for advancing the ongoing debate on increasing nonprofit organizations' financial accountability. We provide some insight into whether the significant changes to audit engagement practices and the subsequent increased institutional regulatory pressures provide additional nonprofit oversight and accountability via improved audit quality. We find that the audit quality of nonprofit hospitals improved from the pre- to post-REGP period, suggesting that audit firms have responded to regulatory pressures and, as institutional theory purports, have enhanced their audit and engagement practices for the benefit of nonprofit hospitals.

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