Auditor choice in Italian non-listed firms

Matonti, Gaetano; Tucker, Jon; Tommasetti, Aurelio

Abstract

© Emerald Group Publishing Limited. Purpose – This paper aims to investigate auditor choice in those Italian non-listed firms adopting the “traditional” model of corporate governance. In Italy, non-listed firms can choose between two types of auditor: the Board of Statutory Auditors (BSA), that is the statutory auditors, or an “external” auditor. At the same time, a BSA conducts the administrative auditing for all companies with equity exceeding €120,000. Design/methodology/approach – The paper estimates a logistic regression model of firm auditor choice between an external auditor and the BSA, which incorporates variables proxying for both agency conflict and organizational complexity effects. Findings – The results show that of the potential agency factors, only board independence drives auditor choice, whereas organizational complexity and risk factors including firm size, investment in inventories, subsidiary status and complexity drive auditor choice. These results may be explained in the administrative audit role of the BSA, which monitors both day-by-day firm operations and the financial statements preparation “project”. Stakeholders as a result are reassured that, in general, their interests are protected. Finally, it was found that legal form and voluntary International Financial Reporting Standards compliance exert an impact on auditor choice. Originality/value – The paper provides support for an internal yet independent auditing body such as the Italian BSA as a wider model for corporate governance in European non-listed firms (OECD, 2004 and 2015). The BSA as an administrative and financial auditing body made up solely of independent highly qualified professionals can work within the firm on an operational basis, and in so doing can increase stakeholder protection.

• Journal Article Type: Article
• Acceptance Date: Dec 9, 2015
• Online Publication Date: Apr 20, 2016
• Publication Date: Jan 1, 2016
• Deposit Date: Dec 10, 2015
• Publicly Available Date: Apr 20, 2018
• Journal: Managerial Auditing Journal
• Print ISSN: 0268-6902
• Publisher: Emerald
• Peer Reviewed: Peer Reviewed
• Volume: 31
• Issue: 4-5
• Pages: 458-491
• DOI: https://doi.org/10.1108/MAJ-07-2015-1215
• Keywords: auditor choice, non-listed firms, agency conflicts, organizational problems, Italian environment
• Public URL: https://uwe-repository.worktribe.com/output/909869
• Publisher URL: http://dx.doi.org/10.1108/MAJ-07-2015-1215
• Additional Information: Additional Information : This is the accepted version of this article. The final version can be found at http://dx.doi.org/10.1108/MAJ-07-2015-1215
• Contract Date: Apr 20, 2016