Auditor Choices and Auditor Reporting Practices

Posted: 27 Sep 1998

See all articles by Stefan Sundgren

Stefan Sundgren

Swedish School of Economics and Business Administration


This paper examines the links between the likelihood of a modified audit report and the professional qualifications of the auditor for a sample of small and medium sized firms. Like Denmark, Germany and Sweden, Finland has a two-tier system for qualifications. The data shows that modified audit reports are more common in unprofitable, leveraged and failing firms, but there are no significant differences in the propensity to modify the report between auditors with the higher and lower professional qualification. However, it is found that non-professional auditors, i.e., auditors assumed to meet only general eligibility criteria specified by law, are less likely to modify the report.

Finnish auditing laws stipulate that all companies must be audited. However, the company must be audited by a professional auditor only if the business exceeds a certain size. Therefore the paper continues with a study of factors related to the decision to engage a professional auditor, although the law does not require firms to do so. Results show that failing firms are significantly less likely to be audited by professional auditors than non-failing firms.

JEL Classification: M49

Suggested Citation

Sundgren, Stefan, Auditor Choices and Auditor Reporting Practices. Available at SSRN:

Stefan Sundgren (Contact Author)

Swedish School of Economics and Business Administration ( email )

P.O. Box 287
FI-65100 Vasa

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