Academic journal article Journal of Business and Accounting

Audit Lag in School Districts: An Analysis of Auditor Quality and Governance

Academic journal article Journal of Business and Accounting

Audit Lag in School Districts: An Analysis of Auditor Quality and Governance

Article excerpt

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

In this study we examine predictors of audit reporting lag in school districts located in New York State (NYS). Using survey data collected from school districts located in Long Island, we also explore the association between audit report lag and governance characteristics of school district management, oversight boards, and audit committees.

Together, school boards, school district management, board-designated committees, and mandated-audit committees, have the responsibility to ensure the quality and timeliness of the district's financial reporting. Audit report lag, typically defined as the time from an entity's year- end until the auditor's report date, affects the timeliness of accounting information (Carslaw, Mason, and Mills 2007). This delay affects stakeholders' confidence in the financial reporting process and the reports themselves have less relevance due to the delay. Since audit lag is a function of both client- and auditor-specific characteristics; we also examine the effect of auditor concentration in the Long Island, NY school district audit market and the effect this concentration has on audit report lag.

LITERATURE REVIEW

Governance

Public-school districts in the U.S. are part of local government and are governed by boards of education (also referred to in this paper as BOE , school boards or school districts). School boards derive their power and authority from the state and are charged with establishing policies and regulations by which district schools are governed (https://www.nsba.org/about-us/frequently- askedquestions). School boards in NYS are comprised of volunteers1 who are elected2 by the district residents. Terms generally range from three to five years and are staggered to ensure that all positions are not open at the same time. There are no term limits.

School boards function similarly to corporate boards in that school boards have an oversight role that is separate from the day-to-day management of a district. According to Land (2002), the concept of a small, centralized, lay school board was modeled after corporate boards of directors. Management responsibilities are handled by the superintendent of education, who is appointed by the BOE to serve as Chief Executive Officer (CEO) of the district and who works hand in hand with the board to achieve the goals of the district. The association between management and governing board is an important one in any organization.

The board of directors plays a critical role in the governance of corporations and school boards play a critical role in the governance of school districts. Although there are clear differences between these boards, the fiduciary responsibility for their respective organizations is quite similar. Just as corporate boards must act in the best interest of their stockholders, school boards must act in the best interest of their districts' stakeholders and have legal and moral obligations to students and parents through the enrollment contract (Land 2002). One of the most important roles of a school board is to efficiently and effectively manage district finances. "Who sits on the board, will, in turn, affect the various strategic decisions made by the board and how effectively the board carries out its functions" (Dey and Liu 2011, 2). Given these established parallel entities, we draw on the corporate governance literature to support our analysis.

School District Audits

The primary source of direct funding for independent school districts in NYS is from property taxes. Billions of tax dollars are spent each year to support elementary and secondary education in NYS. The BOE is responsible for overseeing the development of an annual budget that, if passed by community vote, ultimately determines the annual property tax levy.

In addition to our analysis of NYS school districts, we partition out and separately analyze Long Island school districts because of their relative magnitude. …

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