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This study examines the impact of audit committees on the internal control quality of nonprofit organizations. Based on resource dependency theory that stresses an entity's economic needs for internal control over administering federal funding, we select a sample of nonprofit hospitals subject to the Single Audit Act in the United States, from 2001 to 2008. Our results show that hospitals that had audit committees and also employed Big 4 auditors were associated with better internal control quality. In addition, we find that Big 4 auditors were negatively associated with reported deficiencies of internal control over administering major federal programs in the early years (2001–2004), but positively associated with reported deficiencies of the same kind in the later years (2005–2008), suggesting a possible effect of the Sarbanes‐Oxley Act.

Using two free-communication bargaining games, this study examines bargaining behavior in a setting analogous to one in which a manager and a verifier negotiate a fair value for an asset over a range of possible values. In the renewablecontract game, the manager and the verifier are allowed to form a long-term relationship and are offered mutually beneficial payoffs. In the one-period contract game, the negotiation pair has to part after each negotiation and the verifier's payoff does not rely upon the cooperation from the manager. The results show a 90 percent agreement rate for the renewable-contract game and a 65 percent agreement rate for the one-period contract game. The terms of agreement in the renewable-contract ͑one-period contract͒ game favor the manager ͑verifier͒, resulting in agreed-upon values overstating ͑under-stating͒ actual asset values. Additional analyses suggest that the fair value context affects bargaining behavior in some unique ways. The results of this study have broad implications for accounting practice.

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