Explaining municipal audit costs in Sweden: Reconsidering the political environment, the municipal organisation and the audit market

• DOI: http://doi.org/10.1111/faam.12130
• Author: Torbjörn Tagesson,Veronica Blank,Mattias Haraldsson,Sven‐Olof Collin
• Date: 01 November 2017
• Published date: 01 November 2017

Received: 14 March 2014 Revised: 19 October 2015 Accepted: 18 November2015

DOI: 10.1111/faam.12130

ORIGINAL ARTICLE

Explaining municipal audit costs in Sweden:

Reconsidering the political environment, the

municipal organisation and the audit market

Sven-Olof Collin1Mattias Haraldsson2Torbjörn Tagesson3

Veronica Blank4

1Departmentof Business Administration and

WorkScience, Kristianstad University and

LinnæusUniversity, Kristianstad, Sweden

2Departmentof Business Administration, Lund

University,Lund, Sweden

3Departmentof Management and Engineering,

LinköpingUniversity, Linköping, Sweden

4Departmentof Business Administration and

WorkScience, Kristianstad University, Kris-

tianstad,Sweden

Correspondence

Sven-OlofCollin, Department of Business Admin-

istrationand Work Science, Kristianstad Uni-

versityand Linnæus University, SE-291 88

Kristianstad,Sweden.

Email:Sven-Olof.Collin@hkr.se

Thispaper has been accepted for publication in a

forthcomingissue of Financial Accountability &

Management(33:4; November 2017)

Abstract

With the purpose of explaining professional audit costs in Swedish

municipalities, we hypothesised that audit costs are partly driven

by various signalling and monitoring incentives in order to manage

stakeholder relationships. Our model of the determinants of audit

costs was tested on data from Swedish municipalities, thus extend-

ing the study of audit costs to political organisations in a Scandina-

vian institutional context.The test supported to some extent the tra-

ditional propositions of organisational complexity, risk and market

determinants, as well as the proposition of the political environment.

Our results indicate that audit costs are used to signal accountability,

thereby suggesting that audit as a signal could be managed without

managing professional auditors.

KEYWORDS

audit costs, governance, municipality, Sweden

1INTRODUCTION

There are several reasons for researching audit costs in the public sector,but very few studies address the municipal

setting, especially outside the Anglo-Saxon countries (Cohen & Leventis, 2013;Hay, 2013). Issues such as audit mar-

ket(e.g. Basioudis & Ellwood, 2005a), audit quality (Copley, 1991) and auditor independence (Copley & Doucet, 1993a;

Johnson,2001) are as relevant in the public sector as they are in the private sector (Hay, Knechel, & Wong, 2006). More-

over,increasing demand for accountability in the public sector makes audit fee research especially important (Beattie,

Goodacre, Pratt, & Stevenson, 2001). Samelson, Lowensohn, and Johnson (2006) argue that the public sector audit

environment is characterised by the overriding importance of externalaccountability and speculate that this empha-

sis may cause public sector politicians and administrators to view the demands of the audit process differently from

their private sector counterparts. In particular,public sector auditors can provide the means to signal political commit-

ment and accountability (Funnell, 2015). We suggest in this paper that the spending levelon auditing could constitute

a response to a demand for and/ora signal of accountability.

Financial Acc & Man. 2017;33:391–405. wileyonlinelibrary.com/journal/faam c

2017 John Wiley & Sons Ltd 391