Not-for-Profit Organizations : Avoiding State-Mandated Audits

I provide evidence that an unexpectedly large number of not-for-profit organizations report total revenues just shy of revenue thresholds that trigger state-mandated audited financial statements from those organizations. This result is consistent for seventeen of the nineteen states examined. It also is consistent for each of the twenty years examined and each of the sixteen NTEE categories examined. I show how not-for-profit organizations may manipulate their IRS Form 990 financial accounting to report revenues that fall just short of triggering the additional state regulation of mandated audits. My results support and add to findings from studies that have examined how regulation affects the choices made by not-for-profit management and that have examined accounting manipulation decisions by not-for-profit organization management