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The Audit Risk Assessment of European Small- and Mid-Size Enterprises

Author

Listed:
  • Georgiana-Ioana Țîrcovnicu

    (Doctoral School of Economics and Business Administration, West University of Timisoara, 16 Pestalozzi Street, 300115 Timisoara, Romania)

  • Camelia-Daniela Hategan

    (Department of Accounting and Audit, ECREB—East European Center for Research in Economics and Business, Faculty of Economics and Business Administration, West University of Timisoara, 16 Pestalozzi Street, 300115 Timisoara, Romania)

Abstract

To build trust, SMEs must pass on information as clearly as possible, which can be achieved through a transparent financial reporting process. The article aims to study the impact of six accounting quality risk indicators in audit risk assessment from SME audit reports in EU countries, comparing the findings with the analysis of the same indicators at CEECs level. The qualitative research methodology consists of a descriptive study of the risks in the audit reports, emphasizing their types and connection with the company’s characteristics. The study is based on a sample of 443 SMEs listed on the European stock markets and included in the Audit Analytics database, an online platform with information from the company’s financial statements and audit reports. According to the results, the “Audit Fees-Significant Non-Audit Fees” indicator had the highest accounting quality risk impact on SMEs audit reports in the EU. In contrast, for the CEECs companies, the “Audit Fees–Significant Change” index had a more significant impact on the audit reports. The study’s results showed an average trend of 15–16 reported situations per year, with a substantial increase over recent years for CEECs. The main conclusion from the study is that the uncertainties reported by the auditors depend more on the company’s field of activity and how it is managed; therefore, the SME sector should be coordinated according to the accounting regulations regarding the principles and the content of the financial reports. Considering the fast evolution of risks that may affect the audit reports of a small company and the fact that this topic has yet to be thoroughly researched, we find it relevant. The contribution of this article consists of a systematic analysis of the audit risk matrix completing the existing literature, which is why the field can be discussed more widely.

Suggested Citation

  • Georgiana-Ioana Țîrcovnicu & Camelia-Daniela Hategan, 2023. "The Audit Risk Assessment of European Small- and Mid-Size Enterprises," JRFM, MDPI, vol. 16(3), pages 1-12, March.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:3:p:158-:d:1084609
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    References listed on IDEAS

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    1. Maria Madalina Buculescu (Costica) & Bogdan Nicolae Velicescu, 2014. "An Analysis of the Convergence Level of Tangible Assets (PPE) According to Romanian National Accounting Regulation and IFRS for Smes," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 13(4), pages 774-799, December.
    2. Susana Escaloni & Mercedes Mareque, 2021. "Audit Report Lag. Differential Analysis between Spanish SMEs and Non-SMEs," Sustainability, MDPI, vol. 13(22), pages 1-21, November.
    3. David Castillo-Merino & Josep Garcia-Blandon & Monica Martinez-Blasco, 2020. "Auditor Independence, Current and Future NAS Fees and Audit Quality: Were European Regulators Right?," European Accounting Review, Taylor & Francis Journals, vol. 29(2), pages 233-262, March.
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