The auditor's role in small companies
Thomas Riise Johansen and Morten Holm have published a report with survey results on the role of the auditor in small companies.
The report shows that the auditor is the most important external advisor for small companies, and that companies are generally both satisfied with and loyal to their auditor.
However, the research also reveals that the value of audits or other engagements is not experienced in a specific way as few companies experience actual auditor-identified misstatements and suggestions for improvements. Furthermore, respondents demonstrate limited understanding of the auditor’s report included in the financial statements.
A large proportion of companies, for example, believe that their auditor provide assurance on the financial statements although the auditor actually issues a compilation report, which is without assurance.
Surprisingly many companies do not experience the specific effects of the auditor’s work nor do they consider the auditor’s report to be important to be able to obtain bank finance.
This raises the question of whether or not decision-makers in small companies are making informed decisions when choosing between audits, extended reviews and compilation statements, which are the three common engagements provided on financial statements in small companies.
The report ends by suggesting a simple and direct way of communicating differences in assurance levels.
The page was last edited by: Department of Accounting // 05/24/2022