BIG 4 AUDITORS AND AUDIT QUALITY IN NON-LISTED COMPANIES. EMPIRICAL EVIDENCE FROM ITALY

Italian auditing environment is something of a special case compared to other European auditing regimes. While listed companies may be audited only by an external auditor, a Big 4 audit company or otherwise, non-listed companies may instead choose to be audited by a Board of Statutory Auditors. Based on that stated above, this research addresses the question of whether Big 4 auditors perform a high-quality audit in non-listed companies. The key findings are that (i) Big 4 auditors provide high-quality audit compared to other auditors regarding both accounting and real earnings management; (ii) such auditors are more independent than other auditors. To measure the first dimension of audit quality through the input-based measures, which evaluate audit quality using observable inputs to the audit process. To investigate the auditor competence, the accounting and real discretional accruals are estimated. The auditor independence is tested investigating the statistical relationship between the likelihood a company receive a modified audit opinion and the presence of, in turn, accounting and real discretionary accruals. The findings of this research provide evidence that Big 4 auditors perform an audit quality also in non-listed companies, which financial statements are less scrutinised by the public. In conclusion, the findings suggest that the Big 4 auditors protect their reputation also in performing auditing in the context of non-listed companies.