Audit Quality in the Context of Audit Reform Across the European Union: The Case of Croatia

This research analyzes if the audit reform in the Republic of Croatia, which was a part of the legislative audit reform across the European Union, contributed to audit quality measured with one of its most objective proxies – audit adjustments. Croatian unique financial statement report disclosure environment enables the utilisation of this measure. The research sample included the financial data that companies listed on the Zagreb Stock Exchange have publicly disclosed during the financial years from 2016 to 2019. Panel regression was used to formulate the research model. The results have confirmed that the earnings audit adjustments were higher on average after the implementation of the new Audit Act in the Republic of Croatia. Unlike the claims in most of the existing studies, these results indicate the overall effectiveness of the multidimensional audit reform in terms of auditors’ efforts to increase the reliability of financial statements. These results provide valuable insights for legislators and professional organisations in the context of future audit regulation reforms.