Impact of economic crisis in auditing reports: The case of Greece

The paper examines the effect of the macroeconomic crisis on the quality of financial statements. More specifically we investigate the impact of the financial crisis that has taken place in Greece since 2009 on the quality / reliability of financial statements of Greek unlisted firms. We choose to study Greek unlisted firms for two reasons: a) Greek financial crisis has essentially affected the Euro Zone and also has tested the consistency of the European Union and b) Unlisted companies are under quite loose financial surveillance from relevant authorities so they can more easily manipulate their financial statements. Our purpose is to examine in what degree companies try to manipulate their financial statements under financial crisis in order to present a more favorable financial condition.

According to our methodology as a measure of the extent of financial statement manipulation we use the auditors’ audit reports, as they judge the true and fair presentation of companies’ financial position in the financial statements. More qualifications accompany financial statement of bad quality. These statements indicate greater effort for financial statements manipulation. We examine the period 2003 – 2014 and divide our sample in to two periods. We compare the audit reports prior to the crisis (2003 – 2009) and during the crisis (2009 – 2014)

We expect after the start of crisis to observe a deterioration in the quality of financial statements as expressed by the audit reports. We expect an increase in qualified opinions, an increase in the average number of qualifications and also more serious and strict qualifications. Also we expect an increase in the percentage of reports with negative reports.