Auditor Choice in Italian Non-Listed Firms

Gaetano Matonti, Jon Tucker, Aurelio Tommasetti

Research output: Contribution to journalArticle

3 Citations (Scopus)
2 Downloads (Pure)

Abstract

Purpose: This paper investigates 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 euros.
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: Our 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 both monitors 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, we find that legal form and voluntary IFRS 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.
Original languageEnglish
Pages (from-to)458-491
Number of pages34
JournalManagerial Auditing Journal
Volume31
Issue number4/5
DOIs
Publication statusPublished - 8 Jul 2016
Externally publishedYes

Fingerprint

Auditors
Auditor choice
Auditing
Organizational complexity
Stakeholders
External auditor
Corporate governance
Equity
Design methodology
Subsidiaries
Financial statements
Agency conflict
Firm size
Board independence
Italy
Preparation
Logistic regression model
Factors
International Financial Reporting Standards
Risk factors

Keywords

  • Auditor choice
  • Non-listed firms
  • Agency conflicts
  • Organizational problems
  • Italian environment

Cite this

Auditor Choice in Italian Non-Listed Firms. / Matonti, Gaetano; Tucker, Jon; Tommasetti, Aurelio.

In: Managerial Auditing Journal, Vol. 31, No. 4/5, 08.07.2016, p. 458-491.

Research output: Contribution to journalArticle

Matonti, Gaetano ; Tucker, Jon ; Tommasetti, Aurelio. / Auditor Choice in Italian Non-Listed Firms. In: Managerial Auditing Journal. 2016 ; Vol. 31, No. 4/5. pp. 458-491.
@article{11fcc5f3dbc34a3aa9eb0c0f24edf045,
title = "Auditor Choice in Italian Non-Listed Firms",
abstract = "Purpose: This paper investigates 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 euros.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: Our 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 both monitors 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, we find that legal form and voluntary IFRS 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.",
keywords = "Auditor choice, Non-listed firms, Agency conflicts, Organizational problems, Italian environment",
author = "Gaetano Matonti and Jon Tucker and Aurelio Tommasetti",
year = "2016",
month = "7",
day = "8",
doi = "10.1108/MAJ-07-2015-1215",
language = "English",
volume = "31",
pages = "458--491",
journal = "Managerial Auditing Journal",
issn = "0268-6902",
publisher = "Emerald",
number = "4/5",

}

TY - JOUR

T1 - Auditor Choice in Italian Non-Listed Firms

AU - Matonti, Gaetano

AU - Tucker, Jon

AU - Tommasetti, Aurelio

PY - 2016/7/8

Y1 - 2016/7/8

N2 - Purpose: This paper investigates 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 euros.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: Our 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 both monitors 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, we find that legal form and voluntary IFRS 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.

AB - Purpose: This paper investigates 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 euros.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: Our 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 both monitors 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, we find that legal form and voluntary IFRS 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.

KW - Auditor choice

KW - Non-listed firms

KW - Agency conflicts

KW - Organizational problems

KW - Italian environment

UR - https://www.emeraldinsight.com/doi/abs/10.1108/MAJ-07-2015-1215

U2 - 10.1108/MAJ-07-2015-1215

DO - 10.1108/MAJ-07-2015-1215

M3 - Article

VL - 31

SP - 458

EP - 491

JO - Managerial Auditing Journal

JF - Managerial Auditing Journal

SN - 0268-6902

IS - 4/5

ER -