Peter Öhman

Value for money and the rule of law: the (new) performance audit in Sweden

Purpose – This paper aims to develop a classification scheme of different types of value for money (VFM) audits with different degrees of compliance audit, and to classify the performance audits carried out by the Swedish National Audit Office (SNAO) during its first six years as an independent state audit organization reporting to parliament.Design/methodology/approach – The empirical data were gathered from all of the 150 audit reports published by the SNAO from its establishment in 2003 to the end of 2008. Seminars were arranged to discuss the classifications for validation.Findings – The focus on traditional VFM audits (the “Three Es”) is unusual. Most audits carried out by the SNAO combine different types of extended VFM audits with compliance audit. On the one hand, they audit how the government and/or central agencies fulfil their mandates (from good to bad). On the other, they audit how the government and/or central agencies adhere to legislation, rules and policies (right or wrong). In some cases...

Audit regulation and the development of the auditing profession:The case of Sweden

In the wake of the Companies Act of 1895, which stipulated that limited companies should appoint an auditor, an auditing field gradually emerged in Sweden. Our historical review from the end of the nineteenth century to the end of the twentieth century reveals a reciprocal relationship between audit regulation and the development of the auditing profession. Laws and additional rules both codified auditing practice and paved the way for a strengthening of the profession’s position. The findings also show that critical events have triggered these developments. In 1932, a corporate financial scandal forced the profession to improve auditing methods and formulate ethical rules, and the law that followed was considered a significant indication of the importance of auditors in Sweden. The profession’s position was further strengthened in the 1970s when auditors’ associations became rule-making bodies, and the state decided upon additional assignments for auditors. To meet the 1983 prescription in the Companies Act that at least one auditor in a limited company should be authorized or approved, the number of authorized public accountants increased significantly.

Debt financing and firm performance: an empirical study based on Swedish data

Purpose - – The purpose of this study is to examine the relationship between debt level and performance among small and medium-sized enterprises (SMEs). Design/methodology/approach - – Unlike the vast majority of previous research, this study uses three-stage least squares (3SLS) and fixed-effects models to analyse a comprehensive, cross-sectoral sample of 15,897 Swedish SMEs operating in five industry sectors during the 2009-2012 period. Findings - – This study confirms that debt ratios, in terms of trade credit, short-term debt and long-term debt, negatively affect firm performance in terms of profitability. As a high debt ratio seems to increase the agency costs and the risk of losing control of the firm, SME owners and managers tend to finance their businesses with equity capital to a fairly high degree. Practical implications - – As debt policy significantly influences firm performance, and thereby firm value and survival, SME owners and managers should focus on finding a satisfactory debt level. Originality/value - – To the authors’ best knowledge, this study is among the first to use 3SLS and fixed-effects models to analyse the relationship between debt level and firm performance. Moreover, while most previous research has examined listed firms, this study highlights the issue among SMEs, which play a fundamental role in the economy.

The impact of cash conversion cycle on firm profitability: An empirical study based on Swedish data

Purpose - – The purpose of this paper is to seek to investigate the impact of cash conversion cycle (CCC) on performance (i.e. profitability) in Swedish small and medium-sized enterprises (SMEs) over the 2008-2011 period. Design/methodology/approach - – The study uses a seemingly unrelated regression (SUR) model to analyse cross-sectional panel data covering 13,797 SMEs operating in four industries. Findings - – The study provides empirical evidence that CCC significantly affects profitability. In addition, the firm-level control variables size, age, and industry affiliation significantly affect firm profitability. These findings imply that managers could increase firm profitability by improving their working capital management. Research limitations/implications - – The present study is limited to a sample of Swedish SMEs in four industries; further research could examine the generalizability of these findings to other countries and industries. Practical implications - – Improved working capital policy could improve firm profitability by reducing the firms CCC, thereby creating additional firm value. In addition, the results can be used for other purposes, including monitoring of firms by auditors, debt holders, and other stakeholders. Originality/value - – The present study contributes to the literature by employing a SUR model to analyse a comprehensive cross-sectoral sample in a high-tax environment. To the authors’ knowledge, this is the first empirical study to address this issue in the Swedish context based on a large data set covering SMEs in various industries.

Auditors' time pressure: does ethical culture support audit quality?

Purpose - The purpose of this paper is to address the impact of ethical culture on audit quality under conditions of time budget pressure. The study also tests the relationship between ethical culture and time budget pressure. Design/methodology/approach - The study is based on a field survey of financial auditors employed by audit firms operating in Sweden. Findings - The study finds relationships between three ethical culture factors and reduced audit quality acts. The ethical environment and the use of penalties to enforce ethical norms are negatively related to reduced audit quality acts, whereas the demand for obedience to authorities is positively related to reduced audit quality acts. Underreporting of time is not related to ethical culture, but is positively related to time budget pressure. Finally, the study finds a relationship between two ethical culture factors and time budget pressure, indicating a possible causal relationship, but ethical culture does not mediate an indirect effect of time budget pressure on reduced audit quality acts. Originality/value - This is the first study to report the effect of ethical culture on dysfunctional auditor behavior using actual self-reported frequencies of reduced audit quality acts and underreporting of time as data.

Client satisfaction and usefulness to external stakeholders from an audit client perspective

Purpose - The purpose of the paper is to develop, test, and improve a structural equation model (SEM) of client satisfaction with the audit, and of client perception of the usefulness of the audit to external stakeholders. Design/methodology/approach - A questionnaire was mailed to audit clients, i.e. managers of Swedish limited companies with 50 or more employees; 627 useable questionnaires were returned, giving a response rate of 43 percent. Data were processed using the SEM software LISREL. Findings - The data suggest that auditors face difficulties in handling divided loyalties, as audit clients perceive a strong relationship between client satisfaction and usefulness to external stakeholders. Signing auditor competence is positively and auditor skepticism negatively related to both client satisfaction and usefulness to external stakeholders. Research limitations/implications - The paper focuses solely on the auditor and audit team levels and uses a limited number of independent variables. Practical implications - The findings extend previous results, indicating that client relationships with both signing auditors and audit assistants affect client satisfaction positively, but have no significant connection with usefulness to external stakeholders. Consequently, it would be useful to consider organizing audit teams in which the various members have distinct roles. Originality/value - The study addresses an issue most auditing research has not explicitly considered: the distinction between client satisfaction with the audit and client perceptions of the usefulness of the audit to external stakeholders.

Challenges in serving the mass affluent segment: bank customer perceptions of service quality

Purpose - The purpose of this paper is to explore the possible usefulness of a combined multi-attribute and Kano model in analysing how service quality is perceived by mass affluent bank customers. ...

Accuracy of Swedish property appraisers' forecasts of net operating income

This study addresses how property appraisers forecast one important component of the commercial property valuation model: net operating income. We compare appraisers’ ex ante forecasts with corresponding ex post figures from company financial reports. The data are from the Swedish Property Index, 1998–2005, and comprise over 7000 observations. The findings indicate that the appraisers’ forecasts are somewhat forward looking and almost as accurate as those obtained using mechanical autoregressive models. However, the forecasts are biased, as appraisers systematically overestimate future net operating income. There was also evidence of decreasing accuracy over the study period.

To be or not to be – auditors’ ability to signal going concern problems

Purpose – This paper aims to chart Swedish auditors’ likelihood of issuing going concern warnings (GCWs), and to investigate the relationship between formal auditor competence, audit fees and audit firm, respectively, and the likelihood of issuing GCWs. Design/methodology/approach – The empirical data are based on annual reports and audit reports for 2,547 limited companies that went bankrupt in 2010 in the wake of the financial crisis and had filed a financial statement in the year before the bankruptcy. Findings – The findings indicate that Swedish auditors seldom issue GCWs. Moreover, there is a positive relationship between audit fee level and the likelihood of issuing GCWs, and Big 4 auditors being more likely to issue such warnings than other auditors. However, the analyses identify differences between audit firms (within the group of Big 4 firms and within the group of other audit firms) in terms of their predictions of client bankruptcies. This suggests a need for further investigation of firm-spe...

How Lending Officers Construe Assessments of Small and Medium-Sized Enterprise Loan Applications: A Repertory Grid Study

Repertory grid technique and principal component analysis were used to map and analyze how 75 lending officers (LOs) viewed their assessments of small and medium-sized enterprises’ loan applications in one bank and region. A standard set of elements and constructs, derived during pre- and pilot studies, was used. Analysis of individual grids demonstrated that the principal components indicated the existence of similarities in LOs’ construing at an aggregated level. Analysis of the mean grid of all respondents indicated that the LOs were encouraged by the banks lending strategy and supporting system(s) to perform “procedural lending” with a focus on hard and future-oriented information. At the same time, the LOs deemphasized relationship lending, in particular, personal relationships.