The Effect of the Matching Level on Audit Hours
Asian Tax Journal Vol. 15 No. 4 (2014), pp. 113-149
Abstract
This study examines the relation between the matching level and audit hours. The researchhypothesis predicts a negative relation between the matching level and audit hours. Prior studieson the audit hours suggest that high accurals quality(earnings quality) is associated with low audithours. Meanwhile, high matching level is associated with high accurals quality(earnings quality). Thus, we expect the matching level to be negatively related with audit hours. The hypothesis is tested by using sample firms listed on the Korean Stock Exchange from theyear of 2002 to the year of 2011 inclusively. After controlling for variables related with audithours as reported in previous studies, the regression coefficient for the matching level showsstatistically significant negative sign. But matching level is endogenous. In this case, endogeneitywould result in a spurious relation between matching level and audit hours. Therefore weperformed 2－Stage Least Squares(2SLS) test in order to control for potential endogeneity. Inaddition, we measure new proxy for matching level in order to control for past and futureexpense. The empirical results are consistent with the prediction of the research hypothesis. This study contributes to audit hours literature by providing empirical evidence on the relationbetween the matching level and audit hours. Our results provide evidence that the matching levelcan be considered as a measure of audit risk.
Keywords
- Matching level
- Audit hours
- Earnings quality(Accurals quality)
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