Confidential examination files of 41 community banks that changed external audit status under internal controls show that their decisions respond to discipline imposed by regulators and that discipline seldom involves factors related to financial reporting. This suggests that empirical evidence...

Confidential examination files show that the likelihood of a bank to voluntarily choose to be externally audited under internal controls is positively associated with disciplinary actions imposed against it by supervisors and that such actions seldom involve financial reporting. This identifies...