The differentiation of quality among auditors: Evidence from the not-for-profit sector

The association between auditor size and audit quality is examined for a sa mple of not-for-profit (NFP) entities. The audit quality measure is based o n the entities' compliance with eight GAAP reporting requirements. The numb ers on compliance supports policymakers' contention (prior to the recent is suance of three new statements) that reporting by NFPs was inconsistent. Of the eight reporting requirements examined, noncompliance is highest for th ose that pertain specifically to NFPs, for example, disclosures about pledg es and donated materials. However, the extent of noncompliance decreases as one moves from the small non-Big 6 to the large non-Big 6 and from the lar ge non-Big 6 to the then Big 6. This positive association between auditor s ize and audit quality is borne out in multivariate regression analyses, aft er controlling for other correlates of audit quality. Another measure of au dit firm size, based on the number of professionals employed by the firm, f urther confirms this finding. In addition, the results indicate that there are other factors, i.e., client size. financial health, client wealth, and participation in a peer-review process, that impact audit quality.