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Auditor choices and auditor reporting practices: evidence from Finnish small firms

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  • Stefan Sundgren

Abstract

This paper examines the links between the likelihood of a modified audit report and the professional qualifications of the auditor for a sample of small and medium-sized firms. Like Denmark, Germany and Sweden, Finland has a two-tier system for qualifications. The data show that modified audit reports are more common in unprofitable, leveraged and failing firms, but there are no significant differences in the propensity to modify the report between auditors with the higher and lower professional qualification. However, it is found that non-professional auditors, i.e. auditors assumed to meet only general eligibility criteria specified by law, are less likely to modify the report. Finnish auditing laws stipulate that all companies must be audited. However, the company must be audited by a professional auditor only if the business exceeds a certain size. Therefore the paper continues with a study of factors related to the decision to engage a professional auditor, although the law does not require firms to do so. Results show that failing firms are significantly less likely to be audited by professional auditors than non-failing firms.

Suggested Citation

  • Stefan Sundgren, 1998. "Auditor choices and auditor reporting practices: evidence from Finnish small firms," European Accounting Review, Taylor & Francis Journals, vol. 7(3), pages 441-465.
    • Handle: RePEc:taf:euract:v:7:y:1998:i:3:p:441-465
    DOI: 10.1080/096381898336376
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    References listed on IDEAS

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    Cited by:

    1. duréndez gómez-guillamón, Antonio luis & maté sanchez-val, Mariluz, 2012. "The geographical factor in the determination of audit quality," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 15(2), pages 287-310.
    2. Dusica STEVCEVSKA SRBINOSKA, 2022. "Audit modifications in emerging markets: The Macedonian Stock Exchange," Romanian Journal of Economics, Institute of National Economy, vol. 55(2(64)), pages 43-69, December.
    3. Jyrki Niskanen & Jukka Karjalainen & Mervi Niskanen & Jussi Karjalainen, 2011. "Auditor gender and corporate earnings management behavior in private Finnish firms," Managerial Auditing Journal, Emerald Group Publishing, vol. 26(9), pages 778-793, October.
    4. Jani Saastamoinen & Hanna Savolainen, 2021. "Does a leopard change its spots? Auditors and lawyers as valuation experts for minority shareholders in the judicial appraisal of private firms," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(3-4), pages 613-636, March.
    5. Lasse Niemi, 2004. "Auditor size and audit pricing: evidence from small audit firms," European Accounting Review, Taylor & Francis Journals, vol. 13(3), pages 541-560.
    6. Höglund, Henrik & Sundvik, Dennis, 2016. "Financial reporting quality and outsourcing of accounting tasks: Evidence from small private firms," Advances in accounting, Elsevier, vol. 35(C), pages 125-134.
    7. Spathis, Charalambos & Doumpos, Michael & Zopounidis, Constantin, 2003. "Using client performance measures to identify pre-engagement factors associated with qualified audit reports in Greece," The International Journal of Accounting, Elsevier, vol. 38(3), pages 267-284.
    8. Hyytinen, Ari & Väänänen, Lotta, 2004. "Mandatory Auditor Choice and Small Finance: Evidence from Finland," Discussion Papers 950, The Research Institute of the Finnish Economy.
    9. Arber H. Hoti & Hysen Ismajli & Skender Ahmeti & Arben Dermaku, 2012. "Effects of Audit Opinion on Stock Prices: The case of Croatia and Slovenia," EuroEconomica, Danubius University of Galati, issue 2(31), pages 75-87, May.

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