Abolition of Mandatory Audit and its Effect on Swedish Small Limited Companies from Banks Perspective

Abstract

In November 2010 the Swedish government approved the abolishment legislative proposal of mandatory audit for small limited companies. The changes of regulations led to voluntary audit according to the Swedish Audit Act (Revisionslag SFS 1999:1079). The Swedish Bankers Association supported the reform. However, it was underlined that banks still would value audited information. The aim of this study is to examine how this reform of mandatory audit had impact on the bank’s decision-making regarding the credit granting. In addition, it is also interesting to comprehend whether or not the audited financial reports increase the assurance and legitimacy of the company to bank and ease the process of lending credit or loan. However, both theoretical analysis and empirical findings of this study reveal that the absence of auditing have in somehow impact on the banks decision-making of credit granting, which banks sense difficulty and insecurity to evaluate the non-audited clients’ application for credit granting. Further, it might be claimed that the audited financial reports increase the assurance and legitimacy of the company; thereby banks can make the decision to grant credit or loan easier. Banks may rely more on the audited financial reports because of the higher legitimate and safety of the financial information.