The effects of an important audit-reform from 2011
On Tuesday June 20 2023, Øivind André Strand Aase will hold a trial lecture on a prescribed topic and defend his thesis for the PhD degree at NHH.
Prescribed topic for the trial lecture:
Audit regulations across Europe: Are the problems solved by the latest changes in the audit regulation?
Aud M, NHH, 10:15
Summary in English:
The dissertation studies the effects of an important audit-reform in Norway that took place in 2011. The reform introduced a threshold for mandatory audits. Prior to the reform, the audit market for small private limited liability firms was fully regulated.
As a consequence of the 2011 reform, most Norwegian limited liability firms can choose to drop audit in the coming year if they have less than NOK 5 million in total revenue, less than NOK 20 million in total assets, and no more than 10 full-time employees.
The dissertation shows that the audit-reform was of importance to small private firms. Small firms can now base their audit decision on firm-specific, cost-benefit assessments. Although some firms forego growth opportunities to avoid crossing the threshold for mandatory audits, this effect is estimated to be immaterial. While it represents an economic loss, it also demonstrates that small firms value the opportunity to save both direct and indirect audit costs.
The main finding in the dissertation is that the reform is not found to have significant and consistent effects on the quality of financial reporting, nor on tax compliance.
The analysis is based on data from the Norwegian Tax Administration for the years 2006-2015. Firms just above the threshold for mandatory audit, and voluntary auditees are used as control groups in the analyses. Reporting quality is measured by standard accounting quality proxies in the literature. Tax compliance is measured by the number of missed VAT reporting deadlines, the amount of overdue payments to the Tax Authority, tax audit findings, and changes in the effective tax rates. Having detailed tax and accounting data for the same firms before and after the reform, makes it possible to control for unobserved firm characteristics that may influence the decision to drop audit.
Overall, the introduction of thresholds for mandatory audits in Norway seems to have been a well-functioning reform. The threshold for mandatory audit has been increased somewhat after the time period analysed in the dissertation and has now reached NOK 7 million in total revenue and NOK 27 million in total assets for limited liability firms with no more than 10 full-time employees. The findings in the dissertation support this development and suggest that the government may consider increasing the threshold further.
Title of the thesis:
Essays on the effects of introducing thresholds for mandatory audits in a fully regulated audit market for private limited liability firms
Aud M, NHH, 12:15
Members of the evaluation committee:
Associate Professor Floris Zoutman (leader of the committee), Department of Business and Management Science, NHH
Professor John Christian Langli, Norwegian Business School BI
Research Director Anne Brockmeyer, Centre for Tax Analysis in Developing Countries (at Institute for Fiscal Studies)
Professor Jarle Møen, Department of Business and Management Science, NHH
Professor Liv Osland, Department of Economics and Administration, HVL
Professor Kjell Henry Knivsflå, Department of Accounting, Audit and Law, NHH
The trial lecture and thesis defense will be open to the public.