While Small and Medium-sized Enterprises (SMEs) constitute a significant segment of the Australian economy, and external accountants are their major service providers, little is known as to why SMEs purchase services from external accountants and what benefits they derive from those services. This thesis develops our understanding and investigates the benefits provided by external accountants, through auditing and business advisory services, to Australian SMEs. The relatively unregulated SME environment provides a unique opportunity to examine the market for professional services. SMEs, for example, can choose to be audited or not, and there is significant variation in the level of agency conflict they face. This thesis analyses data collected from two surveys of Australian SMEs. While theory suggests that auditing is a costeffective response to agency conflict, measures of this conflict are found to be associated with voluntary demand for external auditing, but not for internal auditing. Though the nature of the relationship between external and internal audit is unclear, a negative association is found between the two, suggesting substitution between these services. Whereas external audit is provided to reduce agency conflict, internal audit may be substituting for other services, unrelated to agency issues, such as providing useful information for decision making. I also investigate the economic benefit SMEs derive from auditing by measuring whether audited SMEs pay a lower interest rate on their major institutional borrowings compared with unaudited SMEs, or demonstrate superior performance. I find no evidence of a direct economic benefit on either of those measures. External accountants have responded to increasingly broad-ranging market information needs by providing an expanded range of business advisory services, and this thesis also investigates the relationship between external audit and business advice in the context of this changing market. Despite theory suggesting a complementary relationship, SMEs spend less on business advice when they also buy an audit, and this finding persists irrespective of agency considerations. The main purpose of business advice is to help improve firm performance, and SMEs buying business advice are found to perceive their business to be outperforming their competitors. This suggests a benefit associated with these services.
| Identifer | oai:union.ndltd.org:ADTP/187558 |
| Date | January 2008 |
| Creators | Carey, Peter John, Accounting, Australian School of Business, UNSW |
| Source Sets | Australiasian Digital Theses Program |
| Language | English |
| Detected Language | English |
| Rights | http://unsworks.unsw.edu.au/copyright, http://unsworks.unsw.edu.au/copyright |
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