The Demand for Voluntary Audit in Micro‐Companies: Evidence from Finland

Abstract

The purpose of this study is to uncover additional determinants of the demand for voluntary audit in micro‐companies by investigating the internal management factors that have not yet been explored in prior literature. The hypotheses are developed from the literature and interviews with owner‐managers of such companies, bank lenders and the tax authority. The study is based on archival data relating to some 50,000 Finnish micro‐companies over the three‐year period following the introduction of audit exemption in 2008. Our results show that the drivers of voluntary audit are: (1) management needs to ensure security of supply from trade creditors, (2) the company is not in financial distress, (3) the company is growing, (4) management has a need for tax reporting credibility, and (5) ownership is dispersed. The results of this research will be of interest to the owners and managers of micro‐companies, as well as the accounting and auditing profession.

What drives voluntary audit adoption in small German companies?

“…€200,000; average number of employees: 3 [Ojala et al, 2016]), still considerably higher thresholds for small companies' audit exemptions.…”

“…Collis, 2012;Dedman et al, 2014) or Finland (Niemi et al, 2012;Ojala, Collis, Niemi, Kinnunen, & Troberg, 2016), where many small companies have only recently been relieved from the onus of a mandatory audit regime after an increase in size criteria.…”

“…However, it can also be seen that in subsequent years the voluntary audit ratio decreases, revealing a trend away from voluntary audit (Dedman et al, 2014;Ojala et al, 2016). Thus, questionnaire surveys (Collis, 2010;Collis et al, 2004;Niemi et al, 2012) analyzing voluntary audit decisions based on managers' willingness to opt for future voluntary audit while auditing is still mandatory for them may overestimate the benefits of a voluntary audit.…”

Small is big! The role of ‘small’ audits for studying the audit market

“…Niemi, Kinnunen, Ojala, & Troberg, 2012;Bianchi, in press;Collin, Ahlberg, Berg, Broberg, & Karlsson, 2017). Furthermore, SMEs see that auditors may play a role in supporting management decisions, as well as help improving operational e ciency and e ectiveness (Collis, 2012;Ojala, Collis, Kinnunen, Niemi, & Troberg, 2016).…”

“…Furthermore, auditors in this setting provide much more than assurance of nancial statements. Studies such as Niemi et al (2012), Ojala et al (2016), and Collin et al (2017) bring insights into the added value provided by external auditors in areas such as taxation, accounting, and decision making. Questions remain regarding the extent to which the implicit provision of these additional services in audit engagement may a ect auditor independence (Vanstraelen & Schelleman, 2017).…”