The Abolishment of Statutory Audit in Sweden

1. Introduction

FAR published in 2005 a report that describes auditing as a process which involves planning, reviewing and expressing an opinion on annual reports using professional skepticism (FAR 2005). An audit is essentially a monitoring mechanism that helps reduce information asymmetry and protect the stakeholders by assuring that the financial statements provide a true and fair view of an organization’s position and performance. However, auditing can also be a costly burden for Small and Medium-Sized firms (SMEs) . Hence, in Sweden a statutory audit exemption came into effect in November of 2010. Swedish SMEs now have the option of keeping their auditor or for the company owner(s) to refrain from auditing. The decision to abolish statutory audit in Sweden has caused both opportunities as well as challenges that both firms and the auditors have to adapt to. Despite the fact that most SMEs are exempt from an audit, there are still SMEs that voluntarily choose to have their financial statements audited. What is of great interest is to gain a deeper understanding of the reasons for why exempt SMEs choose to keep their auditor, while others decide to take the exemption.

1.1 Background

Auditing is a profession that has developed over a long time horizon. Öhman (2006) emphasizes that organizations have been inspected by audit-like procedures since the 1600’s. In 1895 in Sweden, a new corporate law required companies to have an auditor, which started the discussion around the term “authorized auditor” and highlighted the importance of auditing (FAR 2012). Statutory auditing has been required of practically all limited companies since 1910 in Sweden (Elling, 1993). Recently, significant changes in the auditing profession have been initiated in the EU that has affected Swedish SMEs. At a meeting in March 2007 the European Council stressed that a strong joint effort by the EU and the Member States is necessary to reduce the administrative burdens of accounting...