Abstract

Supervision of external audit report is the posterior control system maintained by SFC(Securitiesand Futures Commission) according to the Act on External Audit of Stock Companies to enhancethe reliability of accounting information. The effectiveness of this system has been discussed in alittle research papers in Korea. But there has been no consistent findings so far. In this research,it is empirically tested whether there is changes in earnings management or conservatism after thesupervision and those changes last for a certain period time. Earnings management measured by discretionary accruals has not been reduced significantly forthe total firm－year samples as well as for the whole 4 years after the supervision. However, thereis significant increase of conservatism after the supervision even though this change does not lastmore than a year. This research encourages the necessity of further discussion on the effective management ofaudit report supervision so that the better supervision system could be supported by the consensusof interested parties.

Keywords

• Supervision of Audit Report
• Earnings Management
• Discretionary Accruals
• Conservatism

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