Public and private sector auditors and accruals quality in English NHS hospital Trusts

To promote auditor independence and audit quality in English NHS Trusts the Audit Commission regulates auditor rotation, fees and the appointment of its own and private sector auditors. NHS sanctioned departures from GAAP, some of which allow the financial breakeven target to be achieved, have been...

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Bibliographic Details
Published in:The British accounting review 2008-03, Vol.40 (1), p.28-47
Main Authors: Ballantine, Joan, Forker, John, Greenwood, Margaret
Format: Article
Language:English
Subjects:
Abnormal accruals
Accountant independence
Accruals
Audit engagements
Audit quality
Audited financial statements
Auditors
Audits
England
GAAP
Hospitals
Longitudinal studies
NHS Trust
Private sector
Public sector
Quality of work
Regulation
Statistical data
Studies
Trust
Trusts
United Kingdom
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Summary:To promote auditor independence and audit quality in English NHS Trusts the Audit Commission regulates auditor rotation, fees and the appointment of its own and private sector auditors. NHS sanctioned departures from GAAP, some of which allow the financial breakeven target to be achieved, have been criticised by the Audit Commission as detrimental to financial discipline. In this paper, we investigate the association between abnormal accruals and the achievement of financial breakeven in NHS hospital Trusts over the period 1998–2005. We also investigate the association between abnormal accruals, audit fees and the Trusts audited by public and private sector auditors. We find evidence that abnormal accruals are used to achieve financial breakeven and they differ across different types of auditor. We also identify a negative relationship between abnormal accruals and NHS Trust star ratings. These findings raise questions about the ‘quality’ of NHS audit where compliance with NHS-specific regulations overrides the wider GAAP-based requirement for financial statements to show a true and fair view and they warrant reconsideration of the nature of audit in NHS Trusts.
ISSN:0890-8389
1095-8347
DOI:10.1016/j.bar.2007.09.002