Udvidet gennemgang: Et værdifuldt alternativ til virksomheder med behov for fremmedfinansiering?

Mads Blichfeldt Henriksen & Klaus Thygesen

Student thesis: Master thesis

Abstract

The main purpose of this thesis is to analyze whether extended review is a valuable alternative to audit, for companies with debt financing.
The extended review was introduced in January 2013 and is applicable for small and medium sized companies. The aim for the introduction of the extended review was to ease the administrative burdens for the companies, by giving them the opportunity to choose a declaration with a lower level of assurance as an alternative to the previous mandatory audit declaration. The new declaration was expected to be a cheaper alternative to the audit declaration as the auditors are required to perform less work to reach their opinion on the financial statements. In this case, the owners of the companies will benefit from the lower administrative costs. However, for private companies with debt financing, the lower level of assurance might result in higher financing costs as the lenders will have a higher risk on their credits.
We measure whether extended review is a valuable alternative to audit as the net effect of the potential lower administrative costs and the potential higher financing costs.
To obtain our conclusions we have performed comprehensive analyses of aggregated financial accounting data from the Danish company register and questionnaires to companies, lenders and auditors. Further we have interviewed representatives from the three groups.
Our analysis shows that extended review is used more widely, and especially among complex companies with debt financing, than expected. We explain this observation by the fact that financially sound companies more often use the declaration, as they are less dependent on their current lenders.
For companies that have used extended review, less than 50% have experienced a decrease in external administrative costs through fee to auditors. Further, around 20% have experienced less internal administrative costs via less time consumption within the company. Larger debt financed companies with inventories have more tendency to decrease both internal and external costs when choosing extended review. Companies with going concern issues have less tendency to decrease external costs.
Our analysis shows that the companies in very few cases have experienced changed credit terms from both lenders and suppliers. We conclude that the price of debt financing have remained fairly unchanged for the companies after choosing extended review. However, we see a potential increase in financing costs in the future. Further, we conclude that extended review can cause less access to obtain new loans for the companies as the importance of the financial statements increase when there is no existing relationship between the companies and the lenders.
Overall, we assess extended review to be a valuable alternative to audit for certain companies with debt financing.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2016
Number of pages190