A Study on the Effect of Audit Fees Discount on Audit Hours and Audit Quality
Asian Tax Journal Vol. 12 No. 2 (2011), pp. 455-489
Abstract
This study examines the effect on audit hours and audit quality resulted by the audit fee discount which has been happening frequently to make or keep an audit contract. We use the modified Jones and performance matched discretionary accruals to measures the audit quality. The sample of this study covers firms having December fiscal year from year 2004 to 2007listed in the Korea Stock Exchange(KSE) markets. After considering the availability of financial,audit fee, and audit hour data, the final sample includes 1,986 firm－years. Financial data are collected from Kis－Value data. Audit fee and audit hour data are manually collected from annual reports available at the FSS's DART system. Considering prior studies in determining audit fee and audit hour, this study develop an audit fee and audit hour model. We examined the audit fee discount in case actual audit fee is below a certain percent(30%) of the estimated audit fee projected by audit fee estimation model. And we also examined the audit fee discount in case actual audit fee is below a certain percent(30%) of the the previous (fiscal) year actual audit fee. The analysis revealed two main findings：first, consistent with our expectation, the audit fee discount firms have a significantly negative relation on the audit hour；second, the audit quality was not associated with the audit fee discount firms and the abnormal audit hour firms. This study findings have implications for the body of literature documenting relations between audit fee(audit hour) and audit quality. Based on these results, this study contributes to the authorities concerned in that audit fee discount could seriously impact on audit quality and they should keep an eye on the discount of audit fee to keep a certain level of audit quality.
Keywords
- audit fee
- audit fee discount
- audit hours
- audit quality
- audit risk
- discretionary accruals
- initial audit
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