The impact of firm characteristics on voluntary auditing in Sweden

Abstract: In 2010, an exemption from the mandatory audit for small sized companies was introduced in Sweden, which implies that this issue is relatively new and there is generally a lack of research when it comes to voluntary auditing in the country. This study tests factors from previous empirical studies in attempt to provide a comprehensive picture of factors that might be of significant importance when a company is deciding about voluntary auditing. In this study, based on a random sample of 639 small and medium sized companies in Sweden, factors used in previous foreign studies that were found to affect the demand for voluntary auditing have been empirically tested. This is done to see if the same link exists in Sweden. Hence, this study examines the relationship between a set of variables reflecting ownership structure, leverage, firm size, risk as well as industry characteristics and the demand for voluntary auditing in small sized companies in Sweden. The study provides significant support that turnover and industry characteristics are the most important predictors for voluntary auditing. While turnover has a positive impact on auditing, profitability and liquidity are the strongest negative predictors. No significant results are found for board size, leverage, the proportion of receivables and inventory, and firm age.