| Summary: | Despite the vital role that statutory auditing plays in enhancing trust or credibility over the financial statements of business entities, most member states in the European Union community have decided to grant a waiver or exempt small companies from the service in order to reduce administrative burden and cost for these companies. In Sweden this is still a proposal that will be in effect by 2010. Since accounting has become the way firms measure their performance, auditing has also become an increasing need for users of accounting information such as stakeholders. This paper presents an investigation on the banks opinion and reactions about the new proposal or legislation concerning small companies in Sweden that will be exempted from statutory auditing. The study is focused on the banks perspective since banks are key players in providing funds to small companies and enabling their survival. In granting loans to companies, banks always require them to provide audited financial statements for assurance and credibility purpose. Thus our empirical findings have been carried out through the inductive research method based on three interviews undertaken with some personnel of the management of three major banking institutions in the city of Umea and Skelleftea. From this study we found that though statutory audit will be removed for small companies by government, banks will still require these companies to provide them with audited financial statements when it comes to granting loans to companies. Unfortunately, this policy may backfire as it opens the floodgates for companies to manipulate by keeping low figures to avoid tax or high to increase credibility.
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