The Abrogation of the Statutory Audit -Effects on the Swedish Tax Authority from an Agency Theory Perspective

Abstract

Background and problem The statutory audit for small LLCs in Sweden was removed in 2010. The Swedish Tax Authority raised many concerns before the legislative change, but since then they have not voiced their opinions regarding its effects. They lost a tool to ensure that the information that they receive from the company is correct, but it is unclear how this has affected their work processes. Aims of study The aim of this study is to investigate the Swedish Tax Authority’s current views on the legislative change. Also, the subject of the value of the external audit and how it might have an effect on the information asymmetry that can arise in the Principal-Agent relationship between the Swedish Tax Authority and the Swedish LLCs. Research questions How has the abrogation of the statutory audit for small LLCs affected the Swedish Tax Authority? Is the external audit useful to redress the information asymmetry between the Swedish Tax Authority and the Swedish companies? Methodology A qualitative study with individual interviews with five employees at the Swedish Tax Authority and one interview with the Chief Legal Officer at the Swedish Companies Registration Office. In addition to this a selection of articles, on the value of audit as well as on the subject of the abrogation in different EU member states, have been studied. Analysis and conclusion The abrogation of the statutory audit has not affected the Swedish Tax Authority as much as they feared it would. The General Accounting Controls, that were concurrently implemented, is perceived to be more beneficial than the external audit. The most important tool to redress the information asymmetry is a continuous contact between the company and an objective external party with relevant knowledge in accounting and in the company. It is of less importance whether this person is an external auditor or an accounting consultant.