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The eff ect of introducing voluntary audit on accounting quality and firm behaviour : an empirical study of small Norwegian firms

Larsen, Christoff er K.; Lø chen, Jo A.
Master thesis
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URI
http://hdl.handle.net/11250/300323
Date
2015
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  • NoCet - Master theses [88]
Abstract
Auditors play an important role by ensuring that the rm's external stakeholders

base their decisions on information subject to adequate controls. In this study, we

explore the e ffects the option of voluntary audit has had on small firms' accounting

quality and behaviour. We use a detailed data set on all businesses in Norway gathered

by the Norwegian Tax Authorities. We present quasi-experimental evidence

showing the negative causal e ect opting out of audit has on accounting quality,

and clear evidence of behavioural eff ects in the form of bunching below the revenue

threshold for voluntary audit. Our findings suggest that the option of voluntary

audit has led to an increased risk of external stakeholders basing their decisions

on lower quality information. Evidence of bunching behaviour indicates that fi rms

bunch by either exercising earnings management activities or reducing output.

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