Audit Quality of Italian Industrial Non-listed Firms: An Empirical Analysis

The study measures audit quality of Italian non-listed SMEs, moving from two elements: i) the Italian law distinguishes between administrative and financial audit; ii) while listed companies have to assign administrative audit to the Board of Statutory Auditors (BSA), and financial audit to external auditors. However, non-listed firms, which are not “entities of public interest” and are not obliged to prepare consolidated financial statements, can assign both to the BSA. The research compares audit quality performed by these bodies.Considering the independence of BSA’s members, it is expected that there are no significant differences between the two alternatives. Moreover, it is hypothesized that Italian SMEs tend to underestimate earnings.The approach adopted differs from previous studies because it analyses SMEs (which represent the wider market for audit services), while literature mainly analyses large listed firms. Moreover, the modified Jones’ regression model is adopted to the characteristics of the Italian firms.