The association between state audit budgets and specialized audit inputs

The relationship between the size of a state audit budgets, audit responsibilities, professional characteristics of staff, risk, and tax and expenditure limitations is explored. Bivariate relationships are examined and then a model is estimated which controls for size, complexity, financial risk factors, and political risk factors. This provides a framework for considering the incremental influence of specialized audit inputs. Both ‘brand names’ and size have been used in past research to proxy for quality dimensions intended to differentiate the audit product provided by different suppliers. This research extends such work by considering characteristics of the auditing services as reflected by specific inputs and by using cost data rather than audit fee data. The states are observed to differ in their responses to financial and political factors by spending resources on peer review, countinuing professional education, certifications of professional staff, and expertise in both the computer science area and in law. A positive association of cost and auditor differentiation, implicit in past audit fee literature is corroborated.