Costs of statutory auditors for Italian firms outweigh measurable benefits
A Banca d'Italia working paper concludes that the aggregate costs of mandatory statutory auditors for Italian private limited companies outweigh their measurable benefits. The study estimates auditors' annual costs at 21-27 thousand euros per firm, with only modest balance sheet improvements.
Modest balance sheet gains, no credit boost
A Banca d'Italia study reveals that mandatory statutory auditors for Italian private limited companies lead to a 13 percentage point increase in the likelihood of appointing auditors.
For firms just above the regulatory thresholds, auditors prompted a modest strengthening of balance sheets, with the share of assets held as reserves and paid-in capital increasing marginally by 1.3 percent.
Auditors also accelerated debt restructuring by nearly one year and temporarily reduced bankruptcies by 0.5 percentage points during their typical three-year tenure.
However, these improvements did not translate into better access to credit or lower borrowing costs for the firms.
The annual average cost of auditors per firm was estimated at 21-27 thousand euros, corresponding to approximately 3 percent of the labor cost for a firm with 20 employees.
Italy's unique regulatory burden
The study employs a regression discontinuity design, leveraging thresholds that mandate auditor appointments for Italian private limited companies.
Italy uniquely requires firms with fewer than 50 employees to appoint and compensate auditors, a burden not imposed in peer nations.
A cost-benefit analysis concludes that aggregate costs of statutory auditors substantially outweighed their measurable benefits.
Estimated aggregate costs ranged from 547 million euros in 2017 to 1.2 billion euros in 2023. This contrasts sharply with an estimated reduction in bankruptcy-related debt of at most 101 million euros in 2015, highlighting a significant imbalance between costs and quantifiable benefits, especially for smaller firms.
A costly regulatory misstep
The study strongly suggests Italy's mandatory auditor requirement, especially for smaller firms, is an inefficient regulatory burden.
Its quantifiable benefits, like modest balance sheet improvements, do not justify the substantial aggregate costs.
Policymakers should critically re-evaluate corporate supervision's proportionality to avoid hindering growth without clear financial stability gains.