The Statutory Audit for Small Comapanies; Necessary or Not? - A Study of the Swedish Tax Authority's Viewpoint

Abstract

Background and research problems: In Sweden all limited companies have to submit themselves to an audit. Most member-countries in the European Union have chosen to exempt small companies from the statutory audit requirement. In 2003 the Ministry of Justice presented a memorandum that, among other things, suggested an extended regulation about auditor’s and agency’s conflict of interest. Some advisory bodies to the memorandum fear that this will either lead to increased costs for small companies, when they have to engage two different agencies to do their accounting and auditing, or inferior quality if they do the accountancy themselves. This has lead to a discussion about the statutory audit for small companies. Small owner-managed companies are a major part of the companies in Sweden. For these companies the annual report serves little purpose, both internally and externally. The external interested party that everyone thinks wants to keep the statutory audit is the Tax Authority. This thesis will try to find out what opinion the Tax Authority has about a possible removal of the statutory audit for small companies, if they see the statutory audit as a guarantee for good quality in the companies’ accountancy and if they see any alternatives to it.

Purpose: The purpose with this thesis is to find out whether the Tax Authority attaches a great importance to the statutory audit for small companies or not. Furthermore, the purpose is to find out if they look upon the audit as a quality guarantee for the company’s bookkeeping and if they see any alternatives to the statutory audit.

Delimitations: The authors have chosen to look at the statutory audit focusing on small owner-managed limited companies with only a few employees and with the Tax Authority as the main external interested party. No company-owners will be interviewed as we focus on the Tax Authority’s perspective.

Method: A qualitative method has been used when collecting primary data through interviews with five representatives from the Tax Authority and one from the Ministry of Justice.

Conclusions: The study has shown that the Tax Authority do not see any reason to remove the statutory audit, since it is important both as a control-instrument and source of information. They also think the audit have a positive affect on the company’s accountancy. On the question of whether there are any alternatives to the statutory audit the respondents answered in unison: no!

Suggestions for further studies: It would be interesting to study alternatives to the statutory audit in countries that have removed it and their development since the removal, and how the tax authorities in these countries obtain information about the companies and if they find the accountancy reliable.