The impact of the expanded audit report content on SMEs’ bank financing

Abstract

Standard setters and regulators have gradually changed the form and content of audit reports to enhance their clarity and comprehensibility, aiming to reduce the expectation gap. This research investigates the perceived usefulness of the latest expanded audit report (EAR), focusing on the evaluation of its key sections, within the context of bank financing. Additionally, the study explores the potential impact on credit granting decisions, particularly in relation to the accessibility, processing times and financing conditions for SMEs. A structural equation modelling (SEM) methodology was employed to analyse the responses of 225 bank loan officers to a self-administered online questionnaire. The results show that the perception that the audit service is useful has a positive impact on credit granting (access, time and conditions), but it is only influenced by the Opinion section. Basis of Opinion, Other Information and Key Audit Matters (KAM) sections do not appear to be significant. Consequently, additional audit report extensions should be carefully considered before making new decisions, as they are not necessarily perceived as informative.