An examination of comment letters concerning an increase in audit exemption thresholds. Evidence from Finland

Figures & data

Table 1. EU maxima for audit exemption (€).

	2003	2008	2013
Balance sheet total	€3.65 m	€4.40 m	€6.00 m
Net turnover	€7.30 m	€8.80 m	€12.00 m
Average number of employees	50	50	50

Notes: Adopted from the Council Directive 2003/38/EC, the EU Fourth Company Law Directive 2006/46/EC, and the EU Directive 2013/34/EU.

Table 2. Summary of the comment letters and interest groups.

Interest group	Number of comment letters that supported the proposal first round (second round)	Number of comment letters that opposed the proposal first round (second round)	Number of comment letters that did not take a direct stance on the issue first round (second round)
Accounting and auditing profession
Recognized supervisory bodies	2* (2)	3 (3)
Big 4 firms		3 (2)
Mid-tier audit firms		4 (5)
Individual auditors		1 (3)
Public authorities		4 (5)	6 (4)
Users	5 (3)	4 (2)	2 (0)
Academia	0 (1)	1 (4)	1 (0)
Others	4* (4)	1 (2)	2 (3)
Total	10 (10)	21(26)	11 (7)

Notes: * The Federation of Finnish Enterprises and the Federation of Finnish Financial Administration produced one comment letter together in the first round.

Table 3. Summary of the lobbying participants.

	First round	Second round	Total
Accounting and auditing profession	13 (30.2%)	15 (34.9%)	28 (32.6%)
Public authorities	15 (34.9%)	12 (27.9%)	27 (31.4%)
Users	6 (13.9%)	2 (4.7%)	8 (9.3%)
Academia	2 (4.7%)	5 (11.6%)	7 (8.1%)
Others	7 (16.3%)	9 (20.9%)	16 (18.6%)
Total	43 (100.0%)	43 (100.0%)	86 (100.0%)

Table 4. Most frequently used arguments against the increase in audit exemption thresholds (n = 21 for the first round; n = 26 for the second round).

	First round n (%)	Second round n (%)
The reduction of administrative costs is not an appropriate reason for increasing thresholds.	18(86)	19(73)
Auditing creates many positive externalities because audits increase the trust in financial information	12(57)	14(54)
Respondents suggested alternatives to the statutory audit, for example an extended review.	9(43)	12(46)
The audited financial statements are crucial for potential lenders and support the firm in obtaining outside financing.	13(62)	18(69)
The performance of accountants and accounting firms is not regulated and monitored like the performance of auditors in Finland.	8(38)	12(45)
The fears about reduced tax revenue, an increased grey economy, and economic crime are actual and evident. The respondents required an impact assessment of the increase in the thresholds.	18(86)	20(77)
Because the regulatory changes to audit exemption in Sweden were not successful, Finland should not make the same mistakes.	14(67)	15(58)

Table 5. Most frequently used arguments to support the increase in the audit exemption thresholds (n = 10 for the first round; n = 10 for the second round).

	First round n (%)	Second round n (%)
The current audit exemption thresholds are too low compared with those in other EU countries.	5(50)	5(50)
Low audit exemption thresholds do not give small companies the opportunity to evaluate the costs and benefits of auditing.	5(50)	5(50)
Cost is one of the main reasons mentioned for eliminating the mandatory audit. The costs of the universal application of the requirement to have the accounts audited fall disproportionately on small companies.	5(50)	4(40)
The Finnish governmental trend should focus on removing administrative costs.	5(50)	4(40)
The statutory audit requirement for small companies is argued to be unnecessary protectionism.	2(20)	2(20)
Member States should release small companies from the statutory audit requirement if there is no specific justification to demand it. In Finland, these particular reasons do not exist.	3(30)	3(30)

Table 6. Data structure.

First-order concepts	Second-order concepts	Aggregate dimensions
Opposing arguments Auditing creates many positive externalities because audits increase the trust in information and therefore the thresholds should not be increased. Accurate financial statements and auditing play a critical role in advancing the public interest. Companies receive economic benefits from transparent financial reporting and from having their financial statements audited. The audited financial statements are crucial for potential lenders and support the firm in obtaining outside financing. The performance of accountants and accounting firms is not regulated and monitored like the performance of auditors in Finland.	Societal importance of auditing is valued	Socio-economic benefits of auditing
There is skepticism regarding whether the cost savings are as significant as they are argued to be. The administrative cost is not an appropriate reason for increasing the audit exemption thresholds.	Regulatory change is not justified by expedience
The respondents require more research and an impact assessment of the increase in the thresholds. More research is also required on the previous change in audit exemption thresholds in Finland that came into effect in 2007. The fears about reduced tax revenue, an increased grey economy, and economic crime are actual and evident. Because the regulatory changes to audit exemption in Sweden were not successful, Finland should not make the same mistakes.	Concern related to unintended consequences of increasing the audit exemption thresholds
Supporting arguments The current audit exemption thresholds are too low compared with those in other EU countries. According to the Accounting Directive, Member States should release small companies from the statutory audit requirement if there is no specific justification to demand it. The Finnish governmental trend should focus on removing administrative costs. The statutory audit requirement for small companies is argued to be unnecessary protectionism.	The current thresholds are over-regulated	Harmonization with international trends
Low audit exemption thresholds do not give small companies the opportunity to evaluate the costs and benefits of auditing themselves. Cost is one of the main reasons mentioned for eliminating the mandatory audit. The costs of the universal application of the requirement to have the accounts audited fall disproportionately on small companies, particularly if the accounts are of little use.	Freedom of choice

Table 7. Lobbying strategies (number of comment letters/percentage).

	Conceptual	Self-referential	Both	None	Total
Panel A: Argumentation during the first round
Opposing	3 (14.3%)	1 (4.8%)	16 (76.2%)	1 (4.8%)	21 (100.0%)
Supporting	2 (20.0%)	1 (10.0%)	2 (20.0%)	5 (50.0%)	10 (100.0%)
Neutral	3 (27.3%)	0 (0.00%)	0 (0.00%)	8 (72.7%)	11 (100.0%)
Total	8 (19.0%)	2 (4.8%)	18 (42.9%)	14 (33.3%)	42 (100.0%)
Panel B: Argumentation during the second round
Opposing	8 (30.7%)	2 (7.7%)	16 (61.5%)	0 (0.00%)	26 (100.0%)
Supporting	2 (20.0%)	1 (10.0%)	5 (50.0%)	2 (20.0%)	10 (100.0%)
Neutral	1 (14.3%)	1 (14.3%)	0 (0.00%)	5 (71.4%)	7 (100.0%)
Total	11 (25.6%)	4 (9.3%)	21 (48.8%)	7 (16.3%)	43 (100.0%)
Panel C: Argumentation during both rounds
Opposing	11 (23.4%)	3 (6.4%)	32 (68.1%)	1 (2.1%)	47 (100.0%)
Supporting	4 (20.0%)	2 (10.0%)	7 (35.5%)	7 (35.0%)	20 (100.0%)
Neutral	4 (22.2%)	1 (5.6%)	0 (0.00%)	13 (72.2%)	18 (100.0%)
Total	19 (22.4%)	6 (7.1%)	39 (45.9%)	21 (24.7%)	85 (100.0%)