ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

An Comparative Analysis on Determinants of Expected Audit Hours of KSE, KOSDAQ and Non－listed Firms

  • Jong-Il Park Chungbuk National University
  • Kwak， SuKeun Seoul National University

Asian Tax Journal Vol. 11 No. 1 (2010), pp. 267-304

Abstract

This study examines the relationship between expected audit hours and the characteristics of auditors and auditees. There has been various research on the determinants of audit hours. Unlike the prior studies, this study examines the expected audit hours, not actual audit hours, estimated by auditors before they start the audit process. These data on expected audit hours are those collected from audit contracts between auditors and auditees. The Korean Institute for Certified Public Accountants collect the information from individual audit contracts and maintain a database. In addition, this study classify the full sample into several sub－samples, based on the listing status and listed markets, and examine the determinants in each markets. Specifically, this study divide the samples into Korea Stock Exchange(KSE) liste firms, Korea Securities Dealers Automated Quotations(KOSDAQ) market, and unlisted firms and examine if the determinants of the expected audit hours are different across different sub－samples. The sample period used for the analyses are 2007 and 2008. Another peculiar characteristic of this study is that this study try to identify various number of factors that influence the audit hours. The empirical results reveal that several variables are associated with the expected audit hours. They are firm size, Big 4 auditor indicator variable, designated auditor indicator variable, preparation of consolidated financial statements indicator variable, English financial statements preparation indicator variable, interim financial statement review indicator variables, internal control system review indicator variable, proportion of export out of total sales, issuance of equity or debts, the company history, firms belong to Chaebol indicator variable, and listing status. This study also finds that Big 4's estimated audit hours are longer than those of non－Big 4 auditors, irrespective of listed market or listing status. These findings support the argument that the audit quality of Big 4 auditors are higher than that of non－Big 4 auditors. The higher－audit quality can be achieved through more input (i. e., auditor's effort) to the audit hours. Since audit hour is the most important determinant of audit fee, the evidence documented in this study is the evidence why Big 4 auditors charge higher audit fees than non－Big 4 auditors. These findings provide valuable insights into regulators, practitioners, as well as academics.

Keywords

  • Expected Audit Hours
  • KSE Listed Firms
  • KOSDAQ Listed Firms
  • Unlisted Firms
  • Big 4's Premium
  • Initial Audit
  • Audit Designation

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