How public is public audit? Evidence from the UK

Radical reform of public audit in England has resulted in the abolition of the specialist public auditor, the Audit Commission. Using a quasi-experimental setting in the English National Health Service (NHS) in which one group... [ view full abstract ]

Radical reform of public audit in England has resulted in the abolition of the specialist public auditor, the Audit Commission. Using a quasi-experimental setting in the English National Health Service (NHS) in which one group of service providers (NHS Trusts) is subject to Audit Commission regulation and another (NHS Foundation Trusts) we apply theories of publicness to investigate and interpret the impact of these reforms on the public outcomes quality and pricing of financial audit. Our sample comprises all NHS provider organisations over the six year period from 2009-10 to 2014-15 and our research design captures not only the impact of the reforms overall, but also, distinctively, the impact of the outsourcing of all audit execution to the private sector and separately, the incremental impact of the abolition of the Commission’s regulatory function. Overall, we find that the new regime delivers similar levels of quality and lower prices and that the majority of the price reduction occurred prior to the abolition of the regulatory function. However, in the absence of the regulatory function, there is increased variation in regional pricing, in quality across organisational types and in the emergence of a monopolistic price premium for the ‘big 3’ audit firms. These findings signal a loss in public value, the risk of which will increase as the influence of the Commission diminishes over time.
We contribute to the literature in the following ways: first we make an early contribution to the growing interest in the application of theories of publicness and public value as frameworks to enhance our understanding of public sector auditing; second, our study distinctively includes a consideration of the quality of services delivered; third, we provide early empirical evidence of the impact of audit reform on public outcomes; fourth, our findings contribute to a body of evidence which point to the need to further develop our theoretical understanding of publicness. Our research site is the English NHS and our sample comprises all NHS Trusts and NHS Foundation Trusts over six year period from 2009-10 to 2014-15.