Accounting Disclosure System and External Audit of Private Universities
Asian Tax Journal Vol. 8 No. 4 (2007), pp. 173-197
Abstract
Starting from the 2006 fiscal year, the scope of external audits for private universities has been significantly expanded to ensure the transparency of school accounting. This study aims to contribute to the improvement of the disclosure system by inducing fair competition in the external audit market, thereby enhancing audit quality and the reliability of disclosed financial statements. Recently, there have been significant institutional changes to ensure the transparency of accounting information for private educational institutions. For instance, the government has revised the special rules on financial accounting for private schools to clarify the basis for disclosing budgets and settlements, and the Korea Private School Foundation has established and operated an accounting information system to promote information disclosure. Discussions on accounting transparency surrounding the revision of the Private School Act are expected to be complemented by the conduct of fair external audits and transparent information disclosure. The analysis period of this study covers the 2004-2005 fiscal years, and the sample consists of private universities subject to external audits, using accounting data disclosed in the Private University Accounting Information System, audit opinions, and audit reports submitted to the Korea Private School Foundation. The results of the analysis are summarized as follows: First, 8.8% and 19.1% of universities omitted internal and external audit opinions in the Private University Accounting Information System in the 2005 fiscal year, respectively, indicating a lack of active voluntary disclosure of external audit opinions. Institutional supplementation, such as defining the scope of mandatory disclosure for voluntary items like internal and external audit opinions, is necessary for the convenience of inter-university comparison and the enhancement of the public's right to know. Furthermore, while 18 universities received comments from internal auditors, only 4 received qualified opinions from external auditors, suggesting a need for improved cooperation between internal and external auditors and the inclusion of review opinions on internal accounting control systems. Second, in the 2005 fiscal year, 75% of external auditors for private universities were accounting firms and 25% were audit teams. Although the turnover of external auditors has decreased compared to the initial stage of introduction, it remains somewhat higher than that of for-profit corporations. Additionally, there was no significant correlation between the size of private universities (total assets and total operating income in the school accounting) and the type of external auditor appointed (Big 4 accounting firms, other accounting firms, or audit teams). These results suggest that there is no differentiated audit demand based on the size of private universities in the external audit market for non-profit organizations. Considering the public nature of private universities and the diversity of stakeholders, it is necessary to institutionally regulate the entities responsible for appointing external auditors and the procedures for their appointment and replacement. Furthermore, limiting the qualifications of external auditors for private universities to accounting firms, excluding audit teams, could be considered. Third, for the effective operation of the external audit system in private universities, institutional improvements are needed. First, accounting standards for non-profit organizations should be introduced to replace the current special rules to enhance the utility of accounting information. It is necessary to establish industry-specific accounting audit standards as the criteria for external audits of private universities to standardize accounting information disclosure, including audit reports. Uniformity in the application of accounting audit standards, such as the scope of application, audit report format, and the expression of review opinions on internal accounting control systems, is required, along with the rationalization of audit fees following the reorganization and expansion of such tasks. Future empirical analysis on the relationship between financial and non-financial variables (e.g., religious foundation status, board size, presence of disputes) and the characteristics of external auditor appointments will contribute to the generalization of these research findings.
Keywords
- Private University Audit
- Big 4 Accounting Firms
- Audit Group
- External Auditor Selection Characteristics
- Voluntary Disclosure
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