Department of Economics and Business Economics

The New Statutory Audit Framework in Europe: Implications for the Provision of Non-audit Services

Research output: Working paperResearchpeer-review

Purpose: The individual EU Member States have options on how they implement the new statutory audit framework in Europe. They may introduce stricter rules or apply certain exemptions where deemed appropriate. Denmark exemplifies Member States with a traditionally high level of non-audit services provided by its auditors. The aim of this study is to contrast the minimum implementation rationale observed in the Danish implementation process with an ex ante examination of fee dependency.

Design/methodology/approach: The audit reform introduces a cap on non-audit fees which implies a regulator-determined condition of non-independence. The cap is applied as a treatment effect on the ex ante relationship between audit fees and non-audit fees. In a sample with 3,238 observations, Denmark is compared with Finland, Germany, Sweden and the UK in order to determine whether the new measure will have different implications.

Findings: The findings support the regulators’ concern that auditors of public interest entities (PIEs) with high levels of non-audit services are more likely to have self-interest threats. The findings also suggest that the implications of the harmonization process will be different across countries. Denmark is singled out as having particular dependency issues which are not sufficiently recognized in the minimum implementation rationale applied by the national legislators.

Originality/value: This study establishes that the measures in the new audit reform likely will have some effect in most Member States, but for certain countries like Denmark, there will be greater effects on the future provision of non-audit services.
Original languageEnglish
Number of pages58
Publication statusPublished - 2016

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