Although municipalities are major economic and social actors in most countries, remarkably little is known about their audits, particularly the determinants of their audit report modifications. The existing evidence is ambiguous at best and scarce, which provides opportunities for further accounting studies in this area. Therefore, based on an agency theory framework, we fill this important research gap by exploring three determinants of audit report modifications in municipalities: (1) economic performance, (2) decentralization of decision-making across different decision-making bodies, and (3) political competition between political parties in local councils. These determinants are examined based on a large panel of data on Finnish municipalities for the period from 2009 to 2013, covering virtually all of the country’s municipalities. We find that a striking 33 percent of audit reports had modifications during this period, which raises serious concerns about the state of municipal management, accounting, and auditing in Finland. Regarding the above determinants, the following conclusions can be made based on our analyses. First, we find partial evidence that weak economic performance increases the likelihood of audit report modifications. Second, the lower the competition among political parties in a local council, the lower the likelihood of audit report modifications. Finally, the more decentralized decision making is across the different decision-making bodies under the local council, the higher the probability of audit report modifications. These results are consistent with agency theory’s explanations regarding the value of auditing.

尽管市政当局是大多数国家/地区的主要经济和社会行为体，但对其审计知之甚少，尤其是审计报告修改的决定因素。现有证据充其量是模棱两可且稀缺的，这为该领域的进一步会计研究提供了机会。因此，基于代理理论框架，我们通过探索市政审计报告修改的三个决定因素来填补这一重要的研究空白：（1）经济绩效，（2）不同决策机构之间决策的权力下放以及（3） ）地方议会政党之间的政治竞争。这些决定因素是根据2009年至2013年期间芬兰各个城市的大量数据进行审查的，几乎涵盖了该国所有城市。我们发现，在此期间，惊人的33％的审计报告进行了修改，这引起了人们对芬兰市政管理，会计和审计状况的严重关注。关于上述决定因素，根据我们的分析可以得出以下结论。首先，我们发现部分证据表明，疲弱的经济表现会增加审计报告修改的可能性。其次，地方议会中政党之间的竞争越低，修改审计报告的可能性就越低。最后，地方议会下不同决策机构的决策越分散，审计报告修改的可能性就越高。这些结果与代理理论对审计价值的解释是一致的。