Determinants of Voluntary Audit in Micro-Entities : A qualitative study of micro-entities in Skellefteå

Abstract Smaller companies have less manpower then larger companies to manage administrative tasks. EU has made it possible for member states to reduce the accounting and audit requirements for small companies and Sweden introduced the option of voluntary audit from the fiscal year of 2011 for micro-entities that do not exceed the threshold values of 3 employees, 3 MSEK turnover and 1.5 MSEK balance sheet total. The values are lower than in other countries with voluntary audit. Due to this, previous research on voluntary audit was conducted on larger companies than Swedish micro-entities. The determinant factors for voluntary audit are therefore different in these micro-entities than in SMEs. The purpose of our study is to find what the decision-makers in micro-entities perceive as their reason to retain or dismiss their auditor as it became voluntary.As a starting point, we theorize that some of the relevant factors in previous studies on voluntary audit in SMEs can also have significance for micro-entities. Furthermore, that the relationships between the auditor and client can affect the decision whether to keep the auditor or not, especially as the companies are small enough for the decision-maker to have regular contact with the auditor and the small size of Skellefteå where we conduct the interview study. Our sample is eleven micro-entities in Skellefteå, out of which three have retained their auditor and intend to keep them in the company, four who are registered with an auditor but will not have an auditor next year, three who dismissed their auditor as soon as possible and one who was started after the law came into action and had never had auditor nor accountant. The determining factor for voluntary audit is in all but one case the advice of the auditor or accountant. No other factor was found to have any effect of magnitude.Previous research in the area have found connections between factors such as debt level, firm size, separation of ownership and management, non-audit services, external demand for audited financial statements and net benefits of audit. As the micro-entities in our sample have little or no debt and no separation of ownership and management we found that these factors are irrelevant to the choice of voluntary audit in our sample. Most of the companies perceive these as factors that would be relevant in a larger company, however. It is the largest firms (by turnover) that have kept their auditor, but do not mention this as a determining factor. Almost all companies have non-audit services from the audit firm, which do not seem to affect the voluntary audit decision. Those who had or will dismiss their auditor see no additional benefits by having an auditor than by having an accountant, which is also supported by the fact that only two companies could mention any benefit with audit aside from external demands from the government or tax authority. All companies believe that there are external demands for audited financial statements, but this was not found to be a determining factor.Relationship factors such as trust, interdependence and service quality do not determine the choice for voluntary audit, but do determine if the companies asked the auditor or accountant for advice on retaining or dismissing their auditor. We found that the decision-makers in the micro-entities all asked the professional they have the best and closest relationship with if they should have voluntary audits, and as all auditors replied to continue with the audit whereas all accountants did not consider it as necessary, relationships can definitely be seen as a contributing, but not determining, factor for voluntary audit